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“The ECB (European Central Bank) just had its 20th birthday. But there is really nothing to celebrate. The EU is in a total mess and the Euro, which was launched on January 1, 1999, is a failed currency. Every president of the ECB has had to deal with fires that had very little to do with price stability but were more a question of survival. Most of these fires were a lot more serious than the candles in the Euro cake above which Draghi is trying to blow out. During the Frenchman Trichet’s watch, he had to deal with the Great Financial Crisis that started in 2006…

[..] The EU now has major economic and/or political problems in many countries. Italy’s new coalition government is a protest against the EU and Euro. With debt to GDP already the highest in Europe, the new regime will exacerbate the problems. Lower taxes and higher spending will guarantee that. As the chart below shows, Italian debt to GDP is already 140%. By 2050 this is projected to grow to 210%. As interest rates go up, servicing the growing debt will soon absorb all tax revenue. Italy will be bankrupt long before 2050 and default on all its debt.

Between now and 2050, the Italian working age population is forecast to decline by 1/3, from 36 million to 24 million. There will be a lot less people to pay for a much higher debt.

The consequences of massive debt, economic stagnation and population decline will be a much lower GDP, which is expected to decline 35% by 2050.

If the above forecast of a major fall in the population as well as a substantial increase in debt is even vaguely accurate, Italy is on its way to the Dark Ages. I must stress here that I find it so sad that this glorious country is suffering so much already and will suffer a lot more. Personally I love Italy — the people, the food, the architecture, the history and the Giola di Vivere (joie de vivre) of the Italians. It will be so tragic to see all of this disintegrate. Hopefully it will take a long time, although, sadly, the crisis might actually be around the corner.

But Italy is just one of many countries which will collapse in coming years. Spain is in a similar situation and the prime minister has just been kicked out. Greece’s problems have never been resolved and this fine country is also bankrupt and so are the Greek banks. I could go on with Portugal, France, Ireland, the UK and many others. Most of these countries have insoluble problems. It is only a matter of degree and time when the EU/Eurozone house of cards comes down.

[..] to maintain leverage in negotiations, the Administration must convince trading partners that the US intends to impose trade restrictions. However, and this is the key part, “it is unlikely that the White House can convince trading partners that tariff threats are credible without also convincing financial markets.” In other words, for Trump’s trade negotiations to be successful, and for US trade partners to take a flip-flopping Trump credibly, the market has to crash. Incidentally, this makes sense when one considers that when Trump officially launched the trade war with China in early April, the president explicitly warned that stocks “may take a hit”, and told investors to prepare for “pain” in the market, a statement which promptly became a self-fulfilling prophecy and sent the market sharply lower.

The other consequence is that markets may tumble not as an effect, but as a cause of the trade war: after all Trump needs to be taken seriously, and that could mean another slide in the S&P. Goldman agrees as much: “… we do not expect trade policy risks to fade anytime soon. While we think that financial market sentiment around trade issues is unlikely to become as negative again as it was in early April, when the President floated the possibility of tariffs on another $100 billion in imports from China, we do not expect markets to become entirely comfortable with the outlook for trade policy, either.”

The punchline: “The challenge that the White House faces is that, to maintain leverage in negotiations, trading partners must believe that the US intends to follow through with proposed actions like tariffs. However, repeated threats begin to lose credibility unless they are followed up with action.” In short, just as China said earlier, the US can’t have its cake and eat it too: Trump can’t have trade war, or the threat thereof, and record high stocks.

Deutsche Bank AG will face another challenge this month when the Federal Reserve publishes the results of a “stress test” on the bulk of its U.S. operations for the first time. Germany’s largest lender is already facing challenges with U.S. bank regulators and in financial markets, with its stock price falling to historic lows on Thursday. Standard & Poor’s downgraded its credit rating to BBB+ from A- on Friday. The downgrade came after reports earlier in the week that the Fed designated one of Deutsche Bank’s U.S. businesses as “troubled” last year, something a person with knowledge of the matter confirmed to Reuters on Friday. The Fed’s stress test results, expected to be released sometime this month, will be the next big public barometer of Deutsche Bank’s financial strength.

It could be difficult for a bank with a subsidiary on the “troubled” list to pass the scenarios, according to a person familiar with the tests who was not authorized to speak publicly. That is because the capital, liquidity and risk management failures that would land a bank on the list are similar to those that lead banks to flunk the stress test, the person said. The Fed has been examining how the biggest U.S. banks would handle a range of adverse economic and market scenarios since 2009, requiring many to shore up their capital buffers and risk management controls. But this is the first year it will publicly release results of six foreign lenders, including Deutsche Bank, after requiring them to create consolidated U.S. holding companies with ring-fenced capital. The Fed tested those new entities last year in a trial run, the results of which are confidential.

Australia just experienced one of the biggest mining booms in world history. But even at the peak of that boom, there was no talk of the wonderful opportunity we finally had to invest in world-class mental health or domestic violence crisis services. Nor was there much talk from either major party about how the wealth of the mining boom gave us a once-in-a-generation opportunity to invest in remote Indigenous communities. Nope, the peak of the mining boom was not the time to help those who had missed out in decades past, but the Howard government thought it was a great time to introduce permanent tax cuts for high-income earners. These, of course, are the tax cuts that caused the budget deficits we have today.

Millions of tonnes of explosives were used during the mining boom to build more than 100 new mines, but it wasn’t just prime farmland that was blasted away in the boom, it was access to the middle class. At the same time that Gina Rinehart was becoming the world’s richest woman on the back of rising iron-ore prices, those on the minimum wage were falling further and further behind their fellow Australians. Australia isn’t poor; it is rich beyond the imagining of anyone living in the 1970s or ’80s. But so much of that new wealth has been vacuumed up by a few, and so little of that new wealth has been paid in tax, that the public has been convinced that ours is a country struggling to pay its bills.

Convincing Australians that our nation is poor and that our governments “can’t afford” to provide the level of services they provided in the past has not just helped to lower our expectations of our public services and infrastructure, it has helped to lower our expectations of democracy itself. A public school in Sydney has had to ban kids from running in the playground because it was so overcrowded. Trains have become so crowded at peak hours that many people, especially the frail and the disabled, are reluctant to use them.

Greece is to take a substantial step towards easing capital controls – restrictions associated with the worst days of economic crisis – as it prepares to exit its current bailout programme. Signalling that confidence is gradually returning to the country’s banking system, the leftist-led government has doubled the amount depositors will be able to withdraw from their accounts as of Monday. “As is usually the case with the economy, this is about psychology,” said a senior official at the Bank of Greece. “The relaxation is as much about boosting confidence among investors and savers as showing banks can now afford to work under normal conditions.” Barely three months before its third international bailout programme expires, the country once at the epicentre of the euro crisis is keen to prove its financial turmoil is over.

Under the new rules, the limit on cash withdrawals from local banks will be raised from €2,300 to €5,000 per month. Business transactions will also be facilitated, with cash transfers abroad being doubled to €40,000 a month. The Greek finance ministry said it had similarly decided to increase the amount depositors can take abroad, in euros or foreign currency, from €2,300 to €3,000 per trip. From 1 July, banks will be allowed to accept customer orders for money transfers overseas for up to €4,000 bi-monthly. In a statement the finance ministry said the aim was to fully lift restrictions “as soon as possible” while ensuring macroeconomic and financial stability.

The Commonwealth Bank Monday agreed to the largest civil penalty in Australian corporate history to settle claims it breached anti-money laundering and counter-terrorism financing laws. The Aus$700 million (US$530 million) fine – which is subject to court approval – comes after mediation between the nation’s biggest lender and the country’s financial intelligence agency AUSTRAC. It follows the bank being taken to court last August for “serious and systemic non-compliance” of anti-money laundering laws more than 53,000 times, with AUSTRAC filing 100 further claims in December. CBA was also accused of failing to adequately monitor suspected terrorist financiers.

“While not deliberate, we fully appreciate the seriousness of the mistakes we made,” said CBA chief executive Matt Comyn in a statement. “Our agreement today is a clear acknowledgement of our failures and is an important step towards moving the bank forward. On behalf of Commonwealth Bank, I apologise to the community for letting them down.” The bank, which in the fallout has replaced senior leadership overseeing financial crimes and pumped millions of dollars into improving its systems, also agreed to pay AUSTRAC’s Aus$2.5 million legal fees.

After slumping more than 10 percent over the past month, during which it admitted losing financial records for almost 20 million customers, CBA’s share price rallied 1.44 percent on the settlement to close at Aus$69.69. The scandal is only the latest issue to damage the reputation of Australian banks, which have been under intense scrutiny amid allegations of dodgy financial advice, life insurance and mortgage fraud, and rigging benchmark interest rates. Last week, ANZ Bank was accused of “cartel arrangements” over a multi-billion-dollar capital raising, along with its advisers Deutsche Bank and Citigroup. They face potential criminal charges.

The causal link between Germany’s two political headaches has an economic basis. Trump understands one thing well: Germany and the eurozone are at his mercy, owing to their increasing dependence on large net exports to the US and the rest of the world. And this dependence has grown inexorably as a result of the austerity policies that were first tried out in Greece and then implemented in Italy and elsewhere.

To see the link, recall the “fiscal compact” to eliminate structural budget deficits that Germany insisted upon as a condition of agreeing to bailout loans for distressed governments and banks. Then note that this pan-European austerity drive took place against the backdrop of massive excess savings over investment. Finally, note that large excess savings and balanced government budgets necessarily mean large trade surpluses – and thus the increasing reliance of Germany, and Europe, on massive net exports to the United States and Asia. In other words, the same incompetent policies that gave rise to the xenophobic, anti-Europeanist Italian government also bolstered Trump’s power over Merkel.

Europe’s inability to get its own house in order has engendered a new Italian majority that is planning to expel a half-million migrants, blowing fresh winds into the sails of militant racists in Hungary, Poland, France, Britain, the Netherlands, and, of course, Germany itself. Meanwhile, with Europe too enfeebled to tame Trump, the US will aim to force China to deregulate its financial and tech sectors. If it succeeds, at least 15% of China’s national income will gush out of the country, adding to the deflationary forces that are breeding political monsters in Europe and in the US.

At least 47 people died and 68 others were rescued after their migrant boat sank off Tunisia’s southern coast, according to the country’s defence ministry. Authorities said about 180 people, of both Tunisian and other nationalities, were hemmed in onboard the vessel. A survivor said the captain had abandoned the boat after it hit trouble in order to escape arrest. “I survived by clinging to wood for nine hours,” he told Reuters from a hospital in the city of Sfax where people were arriving in search of relatives and friends. Flavio Di Giacomo, a spokesman for the International Organisation for Migration (IOM), warned on Twitter that the final number of missing was still not known.

Tunisia has recently seen growing use of its coasts by human traffickers ferrying migrants from Africa to Europe, as Libyan authorities have cracked down on similar activity on their own shores. Tunisia has been suffering from an economic crisis since the toppling of Zine al-Abidine Ben Ali as president in 2011, which led to rocketing unemployment and inflation. In a separate incident, nine people including six children were killed off the coast of Turkey on Sunday after their speedboat sank, the Turkish coast guard said. By 30 May, the IOM had recorded 32,080 people as having reached Europe by boat in 2018 and around 660 as having died or gone missing in the attempt.

Nine migrants, including six children, seeking to head to Europe in a speedboat drowned on Sunday when the vessel sank off Turkey’s Mediterranean coast, state media reports said. The boat hit trouble off the Demre district of Turkey’s Mediterranean Antalya province, a popular holiday spot, the state-run Anadolu news agency said. Five were rescued while one person was still missing, it added. Two adults, one woman and six children lost their lives, it said. The Dogan news agency said that they were seeking to head illegally to Europe but their planned route was not immediately clear. The nearest EU territory is the small Greek island of Kastellorizo to the west which lies off the Turkish resort of Kas.

The nationalities of those on board have yet to be made clear. Over a million people, many fleeing the war in Syria, crossed to European Union member Greece from Turkey in 2015 after the onset of the bloc’s worst migration crisis since World War II. [..] According to the International Organisation for Migration (IOM), 10,948 people crossed to Greece this year up to May 30, sharply more than in the same period in 2017. Thirty-five people lost their lives using this route so far this year, according to the IOM. As well as migrants from countries such as Syria, Eritrea, Iraq and Afghanistan, the route has been used by Turkish citizens fleeing the crackdown that followed the 2016 failed coup.

Germany’s Bayer will wrap up the $62.5 billion takeover of Monsanto on Thursday this week and also retire the name of the U.S. seeds maker, it said on Monday. The German drugmaker had received all required approvals from regulatory authorities, it said in a statement. “Bayer will remain the company name. Monsanto will no longer be a company name. The acquired products will retain their brand names and become part of the Bayer portfolio,” it said. Bayer launched a 6 billion euro ($7 billion) rights issue on Sunday, a cornerstone of the financing package for the deal.

Governments need to urgently tackle a capacity crisis facing airports as demand for international travel grows, but they should be cautious about private sector involvement, airline industry group IATA warned Monday. With passenger levels projected to nearly double to 7.8 billion by 2036, infrastructure such as airports and air traffic control systems were not keeping pace, the International Air Transport Association said. Major airports have sought to address the crisis by managing slots — giving airlines specific operating rights at particular times. But there was still a need for new airports, IATA chief Alexandre de Juniac said at the body’s annual meeting in Sydney.

“We are in a capacity crisis. And we don’t see the required airport infrastructure investment to solve it,” he said, adding that cash-strapped governments were increasingly turning to private firms to increase airport capacity. But he cautioned against privatised airports, warning that they have “not lived up to airline expectations” with many carriers having “far too many bitter experiences”. [..] IATA Monday projected global air passenger traffic to rise by 6.5 percent this year to 4.36 billion, after increases of 7.0 and 7.3 percent in 2016 and 2017 respectively.

Sumburgh Head lies at the southern tip of mainland Shetland. This dramatic 100-metre-high rocky spur, crowned with a lighthouse built by Robert Louis Stevenson’s grandfather, has a reputation for being one of the biggest and most accessible seabird colonies in Britain. Thousands of puffins, guillemots, razorbills, kittiwakes and fulmars gather there every spring to breed, covering almost every square inch of rock or grass with teeming, screeching birds and their young. Or at least they used to – for this year Sumburgh Head is a quiet and largely deserted place. Where seabirds once swooped and cried in their thousands, only a handful of birds wheel round the cliffs.

The silence is uncanny – the result of a crash in seabird numbers that has been in progress for several years but which has now reached an unprecedented, catastrophic low. One of the nation’s most important conservation centres has been denuded of its wildlife, a victim – according to scientists – of climate change, which has disrupted food chains in the North Sea and North Atlantic and left many seabirds without a source of sustenance. The result has been an apocalyptic drop in numbers of Arctic terns, kittiwakes and many other birds. “In the past, Sumburgh Head was brimming with birds, and the air was thick with the smell of guano. The place was covered with colonies of puffins, kittiwakes, fulmars, and guillemots,” said Helen Moncrieff, manager of RSPB Scotland’s office in Shetland.

“There were thousands and thousands of birds and visitors were guaranteed a sight of puffins. Today they have to be very patient. At the same time, guillemots have halved in numbers. It is utterly tragic.” This grim description is backed by figures that reveal the staggering decreases in seabird numbers in Shetland, the most northerly part of the British Isles. In 2000, there were more than 33,000 puffins on the island in early spring. That figure dropped to 570 last year and there are no signs of any recovery this year, although it is still early in the season. Similarly, Shetland’s kittiwake population plummeted from over 55,000 in 1981 to 5,000 in 2011, and observers believe those numbers have declined even further in the past few years.

I was interviewing a couple of homesteaders on an island north of Seattle at twilight last night when they noticed that the twelve-year-old family dog, name of Lacy, had not come home for dinner as ever and always at that hour. A search ensued and they soon found her dead in the meadow a hundred feet behind the house with two big puncture wounds in her body. Nobody had heard a gunshot. We’d just been talking inside and a nearby window was open. They suspect the dog met up with a black-tailed deer buck out there and was gored to death. We hadn’t heard a yelp, or anything. A week ago, an eagle got one of their geese, and some land-based monster got its companion just the other day.

Nature is what it is, of course, and it’s natural for human beings to think of its random operations as malevolent. That aspersion probably inclines us to think of ourselves as beings apart from nature (some of us, anyway). We at least recognize the tragic side of this condition we’re immersed in, and would wish that encounters between its denizens might end differently — like maybe that two sovereign creatures meeting up by sheer chance on a mild spring evening would exchange pleasantries, ask what each was up to, and go on their ways.

Malevolent nature visited me the night before, back home in upstate New York. Something slit the screened window of my henhouse, got inside, and slaughtered two of my birds. Big Red was missing altogether except for a drift of orange feathers. I found Little Blue just outside in a drift of her own feathers, half-eaten. I suspect a raccoon got them, slitting the window screen cleverly with its dexterous hand-like paws — yes, so much like our own clever hands. (In classic after-the-fact human style, I fortified the window with steel hardware cloth the next day.)

It’s the time of year when the wild critters of field and woodland are birthing their young and anxious to procure food for them. Who can blame them for that. Chicken is an excellent dish. I eat it myself, though never my own hens. I actually rescued Little Blue from the clutches of a red-tailed hawk last year as the hawk struggled to get airborne with her and let go as I screeched at it. Blue recovered from the talon punctures and had a good year — one good year on this earth with all its menace, when it is not busy being beautiful.

History has proven that credit bubbles always burst. China by far is the biggest credit bubble in the world today. We layout the proof herein. There are many indicators signaling that the bursting of the China credit bubble is imminent, which we also enumerate. The bursting of the China credit bubble poses tremendous risk of global contagion because it coincides with record valuations for equities, real estate, and risky credit around the world. The Bank for International Settlements (BIS) has identified an important warning signal to identify credit bubbles that are poised to trigger a banking crisis across different countries: Unsustainable credit growth relative to GDP in the household and (non-financial) corporate sector. Three large (G-20) countries are flashing warning signals today for impending banking crises based on such imbalances: China, Canada, and Australia.

The three credit bubbles shown in the chart above are connected. Canada and Australia export raw materials to China and have been part of China’s excessive housing and infrastructure expansion over the last two decades. In turn, these countries have been significant recipients of capital inflows from Chinese real estate speculators that have contributed to Canadian and Australian housing bubbles. In all three countries, domestic credit-to-GDP expansion financed by banks has created asset bubbles in self-reinforcing but unsustainable fashion. Post the 2008 global financial crisis, the world’s central bankers have kept interest rates low and delivered just the right amount of quantitative easing in aggregate to levitate global debt, equity, and real estate valuations to the highest they have ever been relative to income.

Across all sectors of the world economy: household, corporate, government, and financial, the world’s aggregate debt relative to its collective GDP (gross world product) is the highest it has ever been. Central banks have pumped up the valuation of equities too. The S&P 500 has a cyclically adjusted P/E of almost 30 versus a median of 16, exceeded only in 1929 and the 2000 tech bubble. The US markets are also in a valuation bubble because US-owned financial assets have never been more richly valued relative to income as we show below. The picture is equally frothy if we include real estate, also at record valuations to income. China’s capital outflow spillover from its credit bubble has driven up real estate valuations around the world.

What will be the trigger that finally sends the establishment after Trump? Ultimately, the hammer of fiscal crisis and a crashing stock market will break any remaining loyalty of the GOP elders as they smell the 2018 elections turning into a replay of the rout of 1974. And then the Donald will be gone, and well before August 2018, too. I told an audience in Vancouver last Friday that it could happen by February. The bottom line is that the Swamp is so undrainable that it will end up making mincemeat of Donald Trump. Needless to say, the ultimate causes of his demise are anchored deep in the failing status quo. America is so addicted to war, debt and central bank driven false prosperity that even the most resourceful and focused challenger would be taken down by its sheer inertia.

But the Donald is so undisciplined, naïve, out-of-touch, thin-skinned, unfocused and megalomaniacal that he is making it far easier for the Swamp critters than they deserve. To a very considerable extent, in fact, he is filling out his own bill of indictment. Moreover, he is totally clueless about how to manage his presidency or cope with the circling long knives of the Deep State which are hell bent on removing him from office. Accordingly, the single most important thing to know about the present risk environment is that it is extreme and unprecedented. In essence, the Donald is the ultimate bull in an exceedingly fragile China shop — and an already badly wounded one at that. So it is no understatement to suggest that the S&P 500 at 2470 and the Dow at 22,000 is about as fragile as the “market” has ever been.

Employees at the State Department couldn’t help but notice the stacks of cubicles lined up in the corridor of the seventh floor. For diplomats at the department, it was the latest sign of the “empire” being built by Secretary of State Rex Tillerson’s top aides. The cubicles are needed to accommodate dozens of outsiders being hired to work in a dramatically expanded front office that is supposed to advise Tillerson on policy. Foreign service officers see this expansion as a “parallel department” that could effectively shut off the secretary and his advisors from the career employees in the rest of the building. The new hires, several State officials told Foreign Policy, will be working for the policy planning staff, a small office set up in 1947 to provide strategic advice to the secretary that typically has about 20-25 people on its payroll.

One senior State Department official and one recently retired diplomat told FP that Tillerson has plans to double or perhaps triple its size, even as he proposes a sweeping reorganization and drastic cuts to the State Department workforce. Veterans of the U.S. diplomatic corps say the expanding front office is part of an unprecedented assault on the State Department: A hostile White House is slashing its budget, the rank and file are cut off from a detached leader, and morale has plunged to historic lows. They say President Donald Trump and his administration dismiss, undermine, or don’t bother to understand the work they perform and that the legacy of decades of American diplomacy is at risk.

By failing to fill numerous senior positions across the State Department, promulgating often incoherent policies, and systematically shutting out career foreign service officers from decision-making, the Trump administration is undercutting U.S. diplomacy and jeopardizing America’s leadership role in the world, according to more than three dozen current and former diplomats interviewed by FP. “I used to wake up every morning with a vision about how to do the work to make the world a better place,” said one State Department official, who spoke on condition of anonymity for fear of retaliation. “It’s pretty demoralizing if you are committed to making progress. I now spend most of my days thinking about the morass. There is no vision.”

The more I pored over yearly surveys of teen attitudes and behaviors, and the more I talked with young people like Athena, the clearer it became that theirs is a generation shaped by the smartphone and by the concomitant rise of social media. I call them iGen. Born between 1995 and 2012, members of this generation are growing up with smartphones, have an Instagram account before they start high school, and do not remember a time before the internet. The Millennials grew up with the web as well, but it wasn’t ever-present in their lives, at hand at all times, day and night. iGen’s oldest members were early adolescents when the iPhone was introduced, in 2007, and high-school students when the iPad entered the scene, in 2010. A 2017 survey of more than 5,000 American teens found that three out of four owned an iPhone.

The advent of the smartphone and its cousin the tablet was followed quickly by hand-wringing about the deleterious effects of “screen time.” But the impact of these devices has not been fully appreciated, and goes far beyond the usual concerns about curtailed attention spans. The arrival of the smartphone has radically changed every aspect of teenagers’ lives, from the nature of their social interactions to their mental health. These changes have affected young people in every corner of the nation and in every type of household. The trends appear among teens poor and rich; of every ethnic background; in cities, suburbs, and small towns. Where there are cell towers, there are teens living their lives on their smartphone. To those of us who fondly recall a more analog adolescence, this may seem foreign and troubling.

The aim of generational study, however, is not to succumb to nostalgia for the way things used to be; it’s to understand how they are now. Some generational changes are positive, some are negative, and many are both. More comfortable in their bedrooms than in a car or at a party, today’s teens are physically safer than teens have ever been. They’re markedly less likely to get into a car accident and, having less of a taste for alcohol than their predecessors, are less susceptible to drinking’s attendant ills. Psychologically, however, they are more vulnerable than Millennials were: Rates of teen depression and suicide have skyrocketed since 2011. It’s not an exaggeration to describe iGen as being on the brink of the worst mental-health crisis in decades. Much of this deterioration can be traced to their phones.

Even when a seismic event—a war, a technological leap, a free concert in the mud—plays an outsize role in shaping a group of young people, no single factor ever defines a generation. Parenting styles continue to change, as do school curricula and culture, and these things matter. But the twin rise of the smartphone and social media has caused an earthquake of a magnitude we’ve not seen in a very long time, if ever. There is compelling evidence that the devices we’ve placed in young people’s hands are having profound effects on their lives—and making them seriously unhappy.

Retail stocks have been annihilated recently, despite the economy eking out growth. The fundamentals of the retail business look horrible: Sales are stagnating and profitability is getting worse with every passing quarter. Jeff Bezos and Amazon get most of the credit, but this credit is misplaced. Today, online sales represent only 8.5% of total retail sales. Amazon, at $80 billion in sales, accounts only for 1.5% of total U.S. retail sales, which at the end of 2016 were around $5.5 trillion. Though it is human nature to look for the simplest explanation, in truth, the confluence of a half-dozen unrelated developments is responsible for weak retail sales. Our consumption needs and preferences have changed significantly. Ten years ago we spent a pittance on cellphones.

Today Apple sells roughly $100 billion worth of i-goods in the U.S., and about two-thirds of those sales are iPhones. Apple’s U.S. market share is about 44%, thus the total smart mobile phone market in the U.S. is $150 billion a year. Add spending on smartphone accessories (cases, cables, glass protectors, etc.) and we are probably looking at $200 billion total spending a year on smartphones and accessories. Ten years ago (before the introduction of the iPhone) smartphone sales were close to zero. Nokia was the king of dumb phones, with sales in the U.S. in 2006 of $4 billion. The total dumb cellphone handset market in the U.S. in 2006 was probably closer to $10 billion. Consumer income has not changed much since 2006, thus over the last 10 years $190 billion in consumer spending was diverted toward mobile phones.

It gets more interesting. In 2006 a cellphone was a luxury only affordable by adults, but today 7-year-olds have iPhones. Our phone bill per household more than doubled over the last decade. Not to bore you with too many data points, but Verizon’s wireless’s revenue in 2006 was $38 billion. Fast-forward 10 years and it is $89 billion – a $51 billion increase. Verizon’s market share is about 30%, thus the total spending increase on wireless services is close to $150 billion. Between phones and their services, this is $340 billion that will not be spent on T-shirts and shoes. But we are not done. The combination of mid-single-digit health-care inflation and the proliferation of high-deductible plans has increased consumer direct health-care costs and further chipped away at our discretionary dollars. Health-care spending in the U.S. is $3.3 trillion, and just 3% of that figure is almost $100 billion.

“This is the way the world ends; Not with a bang but a whimper”. These lines from T.S. Eliot’s poem The Hollow Men appear at the beginning of Nevil Shute’s novel On the Beach, which left me close to tears. The endorsements on the cover said the same. Published in 1957 at the height of the Cold War when too many writers were silent or cowed, it is a masterpiece. At first the language suggests a genteel relic; yet nothing I have read on nuclear war is as unyielding in its warning. No book is more urgent. Some readers will remember the black and white Hollywood film starring Gregory Peck as the US Navy commander who takes his submarine to Australia to await the silent, formless spectre descending on the last of the living world.

I read On the Beach for the first time the other day, finishing it as the US Congress passed a law to wage economic war on Russia, the world’s second most lethal nuclear power. There was no justification for this insane vote, except the promise of plunder. The “sanctions” are aimed at Europe, too, mainly Germany, which depends on Russian natural gas and on European companies that do legitimate business with Russia. In what passed for debate on Capitol Hill, the more garrulous senators left no doubt that the embargo was designed to force Europe to import expensive American gas. Their main aim seems to be war – real war. No provocation as extreme can suggest anything else. They seem to crave it, even though Americans have little idea what war is. The Civil War of 1861-5 was the last on their mainland. War is what the United States does to others.

The only nation to have used nuclear weapons against human beings, they have since destroyed scores of governments, many of them democracies, and laid to waste whole societies – the million deaths in Iraq were a fraction of the carnage in Indo-China, which President Reagan called “a noble cause” and President Obama revised as the tragedy of an “exceptional people”. He was not referring to the Vietnamese. Filming last year at the Lincoln Memorial in Washington, I overheard a National Parks Service guide lecturing a school party of young teenagers. “Listen up,” he said. “We lost 58,000 young soldiers in Vietnam, and they died defending your freedom.” At a stroke, the truth was inverted. No freedom was defended. Freedom was destroyed. A peasant country was invaded and millions of its people were killed, maimed, dispossessed, poisoned; 60,000 of the invaders took their own lives. Listen up, indeed.

A lobotomy is performed on each generation. Facts are removed. History is excised and replaced by what Time magazine calls “an eternal present”. Harold Pinter described this as “manipulation of power worldwide, while masquerading as a force for universal good, a brilliant, even witty, highly successful act of hypnosis [which meant] that it never happened. Nothing ever happened. Even while it was happening it wasn’t happening. It didn’t matter. It was of no interest.”

Since the days of former Chancellor Gerhard Schröder, who served from 1998 to 2005, Germany’s leaders have been nicknamed the “Auto Chancellor” for their close ties to the industry. Schröder felt he was a patron of the industry. And Merkel, his successor, was quick to see the connection between maintaining close ties to the key industry and staying in power. On Sept. 23, 2008, she spoke to workers at a Volkswagen factory. “The German government stands behind VW. VW is a great piece of Germany.” The sheer mass of 18,000 workers seemed to awe her. She had likely never spoken in front of that many people at one time. She said she would travel home with the feeling that many workers at Volkswagen wanted “Germany to be doing well.” Observers of the chancellor say that visit to Wolfsburg had a deep impact on Merkel.

A short time later, as the world faced a major economic crisis, she gave employees and executives at Germany’s car companies a gift worth billions of euros in the form of government subsidies that saved jobs and kept the floor from falling out on the industry. The unsavory symbiosis between the government, the industry and the lobbying groups – and the revolving door of personnel moving between them – seems to be the root of the evil. This ensures that the industry has influence and access, and assures employees money and access to the career ladder. It can also cause a bit of head-scratching. A public servant who is supposed to one day passionately fight for the good of the people, is suddenly ready to contribute to their systematic poisoning only a moment later.

Former German Transportation Minister Matthias Wissmann, who served as a member of Merkel’s cabinet and is also a friend, sticks out. Today he’s the president of the German Association of the Automotive Industry (VDA). All he has to do to get the chancellor’s attention is send her a text message on his mobile phone. Merkel’s former chief of staff at the national headquarters of her conservative Christian Democratic Union (CDU) party, Michael Jansen, now works at Volkswagen as the head of the VW’s Berlin office, which conducts the company’s lobbying. A few months ago, carmaker Opel’s chief lobbyist, Joachim Koschnicke, left his job to join the CDU’s election campaign team. All have showered the federal government with emails and letters in recent years to ensure that their companies’ interests are fulfilled.

In May 2013, VDA head Wissmann wrote to “Dear Angela” that she should try to hinder the European Commission’s “excessive” proposals on CO2 targets. VW lobbyist Jansen also wrote to the Chancellery in July 2015 that, on the issue of “air quality/diesel,” the industry’s proposals should be given the “greatest possible consideration.” When he was still an Opel lobbyist, Joachim Koschnicke warned the head of the KBA when approval was delayed for a new Opel model that without it, there would be “potential effects on our business operations.” He said it jeopardized production at five plants and that the “negative effects would be dramatic in every aspect.” And then there’s Eckart von Klaeden, who served as minister of state in the Chancellery from 2009 to 2013 and has since served as head of global external affairs at Daimler.

The situation on the Korean peninsula is entering “a very critical phase”, China has warned after new United Nations sanctions targeting Pyongyang were announced following its recent intercontinental ballistic missile test. Speaking in Manila before a regional security summit, China’s foreign minister, Wang Yi, said the sanctions had been designed “to efficiently, or more efficiently, block North Korea’s nuclear missile development”. “Sanctions are needed but not the ultimate goal,” Wang added. “The purpose is to pull the peninsula nuclear issue back to the negotiating table, and to seek a final solution to realise the peninsula denuclearisation and long-term stability through negotiations.” “After the resolution is passed, the situation on the peninsula will enter a very critical phase,” Wang warned, according to China’s state broadcaster CGTN.

“We urge all parties to judge and act with responsibility in order to prevent tensions from escalating.” Wang met his North Korean counterpart, Ri Yong Ho, on Sunday who reportedly smiled continuously as he shook the Chinese official’s hand. According to Reuters, journalists were not given access to a meeting between the two men. On Saturday Nikki Haley, the US ambassador to the United Nations, said “further action is required” against North Korea. Earlier, National Security Adviser HR McMaster said Donald Trump had been “deeply briefed” on recent missile tests carried out by Pyongyang, and said the US would do “everything we can to to pressure this regime” while seeking to avoid “a very costly war”. Haley spoke to the UN security council after the 15-member body imposed the new sanctions against North Korea, in response to its two long-range missiles tests in July.

“We should not fool ourselves into thinking we have solved the problem,” Haley said. “Not even close. The North Korean threat has not left us, it is rapidly growing more dangerous. Further action is required. The United States is taking and will continue to take prudent defensive measures to protect ourselves and our allies.” Washington would continue annual military exercises with South Korea, Haley said. The UN-approved sanctions include a ban on exports worth more than $1bn, a huge bite out of North Korea’s total exports, valued at $3bn last year. Countries are also banned from giving any additional permits to North Korean laborers – another source of money for the regime of Kim Jong-un – and all new joint ventures with North Korean companies and foreign investment in existing ones are banned.

There were six times in US history in which budget surpluses were achieved for long enough to retire a significant amount of debt. Five of those were followed by depressions, the last of which culminated in the Great Depression of the 1930s. The last time America ran a significant budget surplus (about 2.5 years) was under President Clinton. The 2002 recession is a direct result of Clinton’s 1999 surplus which forced the domestic private sector into deficit. Consumer spending fell, unemployment rose and a recession occurred. The economy crashed first in 2000 and then onwards into the Great Recession that began in 2007. “But reducing or retiring the debt isn’t what caused the economic downturns,” says economist, Ellis Winningham. “It was the surpluses that caused it. Simply put, you cannot operate an economy with no money in it.”

So why have we convinced ourselves that government debt is the mother of all evil? That somehow, if the government is in surplus, our bank accounts will automatically improve? In fact, as we shall see, the precise opposite is what would probably happen. Anyone who has ever been chased by a debt collector has come to associate the word ‘debt’ as necessarily scary, bad and to be avoided. If you are a household, this is likely to be true. But debt has an entirely different meaning for governments. To whom is the national debt owed? That would be us: the people. But this truth has been avoided in favour of eliciting a pavlovian response based entirely on the principle that a government budget is the same as that of a household.

“People think that public debt is like a household debt, hence, they buy into the neoliberal nonsense about the government going ‘bankrupt’ and then it’s financial armageddon and we will all die,” says Winningham. “It’s total nonsense. The public debt is just a bunch of savings accounts that pay interest. “People think it will improve their lives because they believe that the government’s debt is their debt. In reality, the government’s debt is the private sector’s asset.” In truth, there is no such thing as the national debt beyond a rhetorical device used to scare the public into submission. In the US, the National Debt is the sum-total of all US dollars ever issued by the Federal Government, from the nation’s founding up until this very moment, that have never been taxed away by the Federal Government.

“From around the 1790’s until today, 2017, the US government has issued, after taxes, $18 trillion dollars for everyone in the non-government sector to use,” says Winningham. “In fact, the national debt has been around for over 170 years now, so at some point, you’re going to have to start understanding that it is not an actual problem. “Further, you need to start understanding that when you accuse Obama, or Bush, or Trump of adding to the national debt, you’re actually accusing them of adding US dollars to the US economy. Or, more precisely, you’re accusing them of adding US dollars to our national savings.” Put simply, The National Debt is the country’s total exports minus the country’s total imports, and isn’t an actual debt at all, but a “balance of trade”.

The government is gearing up to launch new measures that are billed as easing the capital controls but which will in fact reduce the annual amount of cash bank clients can withdraw. As of September 1, when the new measures come into force, citizens will be able to withdraw a total of 1,800 euros per month. When the controls were first introduced in July 2015, Greeks could only withdraw €60 a day, 365 days a year, but since then they have been allowed to carry that amount forward up to a period of two weeks, giving them a €840 limit every 14 days (fixed, from midnight Friday to midnight two weeks later). That will remain the case until the end of August.

The extension of the cumulative withdrawal period may facilitate transactions, but on an annual basis the total amount a bank customer can withdraw will fall from €21,840 (€840 x 26 two-week periods) to €21,600 (€1,800 x 12 months). Greeks could in fact withdraw more money per year on the original limit of €60 per day, totaling €21,900 a year, as that avoided the fixed-two-week-period problem. In other words the “easing” of restrictions has resulted in curtailing people’s withdrawal limit by €300 per annum, for the right to transfer a withdrawal to another day or week. Bank sources tell Kathimerini it is a positive move that will strengthen confidence, make transactions easier and boost the economy.

The new measures will also affect withdrawals in foreign currency in Greece and the use of Greek debit cards for withdrawals abroad. As of September 1 any recipients of money forwarded from abroad will be able to withdraw 50% of the amount without any restrictions. Companies will also be able to open an account at a credit institution by creating a new customer ID regardless of whether they already have another account there. Farmers, who have not been allowed to open bank accounts since the controls started, will finally be allowed to (provided they do not have one already). Employees will be further able to open a new salary account at a different bank to the one at which they are already a client or if their new employer pays their salary at another lender.

While the map looks surprising at first glance, it shouldn’t really once you consider it contains all or most of the world’s most populous countries: China, India, Indonesia (fourth), Pakistan (sixth), Bangladesh (seventh) and Japan (tenth). And according to the World Population Prospects 2017, a recently updated UN report, the world population will hit a staggering 9.8 billion by 2050. China (with currently 1.4 billion inhabitants) and India (with currently 1.3 billion inhabitants) will remain the two most populous countries, and Nigeria will overtake the United States to become the third-most populous country in the world.

Scientists have long known about the anomalous “warming hole” in the North Atlantic Ocean, an area immune to warming of Earth’s oceans. This cool zone in the North Atlantic Ocean appears to be associated with a slowdown in the Atlantic Meridional Overturning Circulation (AMOC), one of the key drivers in global ocean circulation. A recent study published in Nature outlines research by a team of Yale University and University of Southhampton scientists. The team found evidence that Arctic ice loss is potentially negatively impacting the planet’s largest ocean circulation system. While scientists do have some analogs as to how this may impact the world, we will be largely in uncharted territory. AMOC is one of the largest current systems in the Atlantic Ocean and the world. Generally speaking, it transports warm and salty water northward from the tropics to South and East of Greenland.

This warm water cools to ambient water temperature then sinks as it is saltier and thus denser than the relatively more fresh surrounding water. The dense mass of water sinks to the base of the North Atlantic Ocean and is pushed south along the abyss of the Atlantic Ocean. This process whereby water is transported into the Northern Atlantic Ocean acts to distribute ocean water globally. What’s more important, and the basis for concern of many scientists is this mechanism is one of the most efficient ways Earth transports heat from the tropics to the northern latitudes. The warm water transported from the tropics to the North Atlantic releases heat to the atmosphere, playing a key role in warming of western Europe. You likely have heard of one of the more popular components of the AMOC, the Gulf Stream which brings warm tropical water to the western coasts of Europe.

Evidence is growing that the comparatively cold zone within the Northern Atlantic could be due to a slowdown of this global ocean water circulation. Hence, a slowdown in the planet’s ability to transfer heat from the tropics to the northern latitudes. The cold zone could be due to melting of ice in the Arctic and Greenland. This would cause a cold fresh water cap over the North Atlantic, inhibiting sinking of salty tropical waters. This would in effect slow down the global circulation and hinder the transport of warm tropical waters north. Melting of the Arctic sea ice has rapidly increased in the recent decades. Satellite image records indicate that September Arctic sea ice is 30% less today than it was in 1979. This trend of increased sea ice melting during summer months does not appear to be slowing. Hence, indications are that we will see a continued weakening of the global ocean circulation system.

Before meeting with Donald Trump, Sergey Lavrov held talks with the US top diplomat Rex Tillerson. Lavrov’s talks with the US president lasted for about 40 minutes behind closed doors. Moscow and Washington can and should solve global issues together, Lavrov said following his meetings with US Secretary of State Rex Tillerson and US President Donald Trump. “I had a bilateral meeting with Rex Tillerson, then the two of us were received by President Trump,” the Russian top diplomat said. “We discussed, first and foremost, our cooperation on the international stage.” “At present, our dialogue is not as politicized as it used to be during Obama’s presidency. The Trump administration, including the president himself and the secretary of state, are people of action who are willing to negotiate,” the Russian top diplomat pointed out.

Lavrov said agreement reached with Tillerson to continue using diplomatic channel to discuss Russian-US relations. According to Lavrov, the current state of bilateral relations is no cause for joy. “The reason why our relations deteriorated to this state is no secret,” the Russian top diplomat added. “Unfortunately, the previous (US) administration did everything possible to undermine the basis of our relations so now we have to start from a very low level.” “President Trump has clarified his interest in building mutually beneficial and practical relations, as well as in solving issues,” Lavrov pointed out. “This is very important,” he said. Lavrov believes Syria has areas where US might contribute to operation of de-escalation zones. “We are ready for this cooperation and today have discussed in detail the steps and mechanisms which we can manage together,” Lavrov said.

“We have confirmed our interest in the US’ most active role in those issues,” Lavrov said. “I imagine the Americans are interested in this too.” “We proceed from the fact they will take up the initiative,” he added. “We have thoroughly discussed the Syrian issue, particularly the ideas related to setting up de-escalation zones,” the Russian top diplomat said. “We share an understanding that this should become a common step aimed at putting an end to violence across Syria,” he added.

Central banks have been the world’s biggest buyers of government bonds, but may soon stop—a tidal shift for global markets. Yet investors can’t agree on what that shift will mean. Part of the problem is that there is little agreement about how the massive stimulus policies, known as quantitative easing or QE, affected bonds in the first place. That makes it especially hard to assess what happens when the tide changes. Many expect bond yields could rise and shares fall, some see little effect at all, while others suggest it is riskier investments, such as corporate bonds or Italian government debt, that will bear the brunt. But recently, yields on European high-yield corporate bonds hit their lowest since before the financial crisis, in one potential sign that the threat of tapering has yet to affect markets.

When the unwinding begins money managers may not be positioned for it, and markets could move swiftly. In the summer of 2013, investors suddenly got spooked about the Federal Reserve withdrawing stimulus, leading to a swift bond sell off that sent yields on the 10-year Treasury up by more than 1%age point. By buying bonds after the 2008 financial crisis, central banks across the developed world sought to push yields lower and drive money into riskier assets, reducing borrowing costs for businesses. “If it’s unclear what benefits we’ve had in the buying, it’s unclear what will happen in the selling,” said Tim Courtney, chief investment officer at Exencial Wealth Advisors.

Recent data showed that the ECBholds total assets of $4.5 trillion, more than any other central bank ever. The Fed and the Bank of Japan each have $4.4 trillion, although the BOJ isn’t expected to wind down QE soon. With the world economy finally recovering, investors believe that holdings at the Fed and ECB have peaked. U.S. officials are discussing how to wind down their portfolio, which they have kept constant since 2014. The ECB’s purchases of government and corporate debt are now more likely to be tapered later in the year, analysts say, after pro-business candidate Emmanuel Macron’s victory in the French presidential election Sunday.

Dutch politicians either don’t care about their European Union peer Greece, or they don’t know about it. Neither is a good option. They are doing so well over the backs of the Greeks they want Draghi to enact policies that will make them even richer, and the Greeks even more miserable. Oh, and of course “The euro is irrevocable” only until it isn’t.

Mario Draghi kept his cool in the Netherlands – at least on monetary policy. Repeatedly pressed by Dutch lawmakers to say when he’ll start winding down euro-area monetary stimulus, the Ecb president replied that it’s still too soon to consider, despite a “firming, broad-based upswing” in the economy. “Is it time to exit? Or is it time to start thinking about exit or not? The assessment of the Governing council is that this time hasn’t come yet.” His reward was a gift of a plastic tulip in a reminder of a past European financial crisis. Draghi’s voluntary appearance at the hearing on Wednesday put him front and center in one of the nations most critical of the ECB’s ultra-loose policies, which are seen by opponents as overstepping the institution’s mandate, burdening savers and pension providers, and stoking asset bubbles.

Legislators did appear occasionally to get under his skin. The tension rose when he was quizzed multiple times him on the possibility that a government will one day have to restructure its debt, while on the topic of a nation leaving the currency bloc – as Greece came close to doing in 2015 – Draghi’s response was blunt. “The euro is irrevocable. This is the Treaty. I will not speculate on something that has no basis.” The intense questioning underscored the gap between relatively rosy economic data and the discontent among individuals who can’t see the fruits of the ECB’s €2.3 trillion bond-buying program and minus 0.4% deposit rate. It’s a challenge for Draghi, who reiterated his concern that underlying inflation remains feeble and falling unemployment has yet to boost wage growth. The region is far from healing the scars of a double-dip recession that wiped out 9 million jobs and helped the rise of anti-euro populists such as Marine Le Pen, who lost this month’s French presidential election but still managed to pick up more than a third of the vote.

The current slump in expectations of market volatility is not just a stock market phenomenon – it is the lowest it’s been for years across fixed income, currency and commodity markets around the world. It shows little sign of reversing, which means market players are essentially not expecting much in the way of shocks or sharp movements any time soon. It’s an environment in which asset prices can continue rising and bond spreads narrow further. The improving global economy, robust corporate profitability, ample central bank stimulus even as U.S. interest rates are rising, and some fading political risk from elections have all contributed to create a backdrop of relative calm.

There is little evidence of investors hedging – or seeking to protect themselves – from adverse conditions. It is most notably seen in the VIX index of implied volatility on the U.S. S&P 500 stock index, the so-called “fear index”. But implied volatility across the G10 major currencies is its lowest in three years, and U.S. Treasury market volatility its lowest in 18 months and close to record lows. The VIX, meanwhile, has dipped to lows not seen since December 2006, is posting its lowest closing levels since 1993, and is on a record run of closes below 11. By comparison, it was at almost 90 at the height of the financial crisis. Not much current “fear”, then.

Implied volatility is an options market measure of investors’ expectation of how much a certain asset or market will rise or fall over a given period of time in the future. It and actual volatility can quickly become entwined in a spiral lower because investors are less inclined to pay up for “put” options – effectively a bet on prices falling – when the market is rising. If a shock does come the cost of these “puts” would shoot higher as investors scramble to buy them. Surging volatility is invariably associated with steep market drawdowns. According to Deutsche Bank’s Torsten Slok, an investor betting a year ago that the VIX would fall – shorting the index – would have gained around 160% today. Conversely, an investor buying the VIX a year ago assuming it would rise would have lost 75%.

Six of Canada’s largest banks had credit ratings downgraded by Moody’s Investors Service on concern that over-indebted consumers and high housing prices have left lenders vulnerable to potential losses on assets. Toronto-Dominion Bank, Bank of Montreal, Bank of Nova Scotia, Canadian Imperial Bank of Commerce, National Bank of Canada and Royal Bank of Canada had their long-term debt and deposit ratings lowered one level, Moody’s said Wednesday in a statement. It also cut its counterparty risk assessment for the firms, excluding Toronto-Dominion. “Expanding levels of private-sector debt could weaken asset quality in the future,” David Beattie, a Moody’s senior vice president, said in the statement.

“Continued growth in Canadian consumer debt and elevated housing prices leaves consumers, and Canadian banks, more vulnerable to downside risks facing the Canadian economy than in the past.” A run on deposits at alternative mortgage lender Home Capital has sparked concern over a broader slowdown in the nation’s real estate market, at a time when Canadians are taking on higher levels of household debt. The firm’s struggles have taken a toll on Canada’s biggest financial institutions, which have seen stocks slide on concern about contagion. In its statement, Moody’s pointed to ballooning private-sector debt that amounted to 185% of Canada’s GDP at the end of last year. House prices have climbed despite efforts by policy makers, it said. And business credit has grown as well.

[..] the most populous nation on the planet wants to increase its influence by digging further into its pockets — flush with cash after decades of rapid growth — to splash out with its “One Belt, One Road” policy. President Xi Jinping first announced the policy in 2013; it was later named one of China’s three major national strategies, and morphed into an entire chapter in the current five-year plan, to run through 2020. [..] The plan aims to connect Asia, Europe, the Middle East and Africa with a vast logistics and transport network, using roads, ports, railway tracks, pipelines, airports, transnational electric grids and even fiber optic lines. The scheme involves 65 countries, which together account for one-third of global GDP and 60% of the world’s population, or 4.5 billion people, according to Oxford Economics.

This is part of China’s push to increase global clout — building modern infrastructure can attract more investment and trade along the “One Belt, One Road” route. It could be beneficial for western China, which is less developed, as it links up with neighboring countries. And in the long run, it will help China shore up access to energy resources. The policy could boost the domestic economy with demand abroad, and might also soak up some of the overcapacity in China’s heavy industry, but analysts say these are fringe benefits. Experts say China has an opportunity to step into a global leadership role, one that the U.S. previously filled and may now be abandoning, especially after President Donald Trump pulled out of a major trade deal, the Trans-Pacific Partnership.

It’s clear China wants to wield greater influence — Xi’s speech in January at the World Economic Forum in Davos touted the benefits of globalization, and called for international cooperation. And an article by Premier Li Keqiang published shortly after also called for economic openness. But despite all the talk of global connectivity, skeptics highlight that China still restricts foreign investment, censorship continues to be an issue and concerns remain over human rights. [..] In 2015, the China Development Bank said it had reserved $890 billion for more than 900 projects. The Export-Import Bank of China announced early last year that it had started financing over 1,000 projects. The China-led Asian Infrastructure Investment Bank is also providing financing.

The UK housing market is continuing to slow down, with falling property sales, “stagnant” buyer demand and general election uncertainty all adding up to one of the most downbeat reports issued by surveyors since the financial crash. In its latest monthly snapshot of the market, the Royal Institution of Chartered Surveyors (Rics) said momentum was “continuing to ebb,” with no sign of change in the near future. Its report is the latest in a series of recent surveys suggesting that the slowdown is getting worse as household budgets continue to be squeezed and affordability pressures bite. It comes days after the Halifax said house prices fell by 0.1% in April, which meant they were nearly £3,000 below their December 2016 peak. Nationwide reported a bigger decline in April – it said prices fell by 0.4%, following a 0.3% drop in March.

Some parts of London appear to have been hit particularly hard, with estate agents and developers resorting to offering free cars and other incentives to try to tempt buyers. Rics said its members had reported that sales were slipping slightly following months of flat transactions. A lack of choice for would-be buyers across the UK appears to be one of the major factors putting a dampener on sales: the latest report said there was “an acute shortage of stock,” with the typical number of properties on estate agents’ books hovering close to record lows. New instructions continue to drop, which could make the situation worse: the flow of fresh listings to agents remained negative for the 14th month in a row at a national level, said Rics, though it added that the situation had apparently improved slightly in London.

Jeremy Corbyn will lay out plans to take parts of Britain’s energy industry back into public ownership alongside the railways and the Royal Mail in a radical manifesto that promises an annual injection of £6bn for the NHS and £1.6bn for social care. A draft version of the document, drawn up by the leadership team and seen by the Guardian, pledges the phased abolition of tuition fees, a dramatic boost in finance for childcare, a review of sweeping cuts to universal credit and a promise to scrap the bedroom tax. Party sources said Corbyn wants to promise a “transformational programme” with a package covering the NHS, education, housing and jobs as well as industrial intervention and sweeping nationalisation. But critics said the policies represented a shift back to the 1970s with the Conservatives describing it as a “total shambles” and a plan to “unleash chaos on Britain”.

Corbyn’s leaked blueprint, which is likely to trigger a fierce debate of Labour’s national executive committee and shadow cabinet at the so-called Clause V meeting at noon on Thursday, also includes:
• Ordering councils to build 100,000 new council homes a year under a new Department for Housing.
• An immediate “emergency price cap” on energy bills to ensure that the average duel fuel household energy bill remains below £1,000 a year.
• Stopping planned increases to the pension age beyond 66.
• “Fair rules and reasonable management” on immigration with 1,000 extra border guards, alongside a promise not to “fan the flames of fear” but to recognise the benefits that migrants bring.

On the question of foreign policy, an area on which Corbyn has campaigned for decades, the draft document said it will be “guided by the values of peace, universal rights and international law”. However, Labour, which is facing Tory pressure over the question of national security, does include a commitment to spend 2% of GDP on defence. The draft manifesto, which will only be finalised after it is agreed on Thursday, also makes clear that the party supports the renewal of Trident, despite Corbyn’s longstanding opposition to nuclear weapons.

180 years ago today, everyone panicked. On May 10, 1837, New York banks finally realized that the easy money they were lending was unsustainable, and demanded payment in “specie,” or hard money like gold and silver coin. They had previously been accepting paper currency that for every $5 was backed by only $1 in silver or gold. Things culminated to that point after years of borrowing the paper currency to expand west, buy land, and build infrastructure. As silver came in from Mexico, banks lent out five times the amount of their deposits–fractional reserve banking. At the same time, the value of silver was falling because its supply was increasing in America. Great Britain, which had been lending much of the money, was less interested in silver because they could pay for trade with China in opium.

So even though Britain had a year earlier begun demanding payment in specie, the abundant silver in America did not hold the same weight, so to speak, it had previously. Now, reflect on this for a second. The USA was depending on loans from a country that they had successfully revolted and seceded from fewer than 50 years earlier. Britain had also provoked The War of 1812 just 25 years earlier when they wouldn’t stop attacking American ships. But somehow it still seemed like a good idea to depend on British banks to form the foundation of American development. So at the same time when American banks had to backstep their risky practices, Britain also just so happened to need 25% less cotton, which was the foundation of the American economy. This only exacerbated the trade deficit.

But still, despite whether or not Britain’s actions were nefarious, the whole situation would have been remarkably cushioned if fractional reserve banking had not been used. Because of this “easy money,” land was bought at enormous rates on credit, but credit that was not backed by actual value–only 1/5 of the actual value existed of what was being lent! President Andrew Jackson was not entirely without blame either. When he deconstructed the federal bank, he deposited the money into state banks, and encouraged them to go ahead and lend, lend, lend! Of course, when the time came for the banks to return the deposits, the money was gone. So when this massive real estate bubble burst in 1837, it caused a panic and ensuing recession that lasted until 1844. Does any of this sound familiar to you?

Despite trillions of euros worth of QE, Italy has continued to suffer a 30% loss in competitiveness compared to Germany during the last two decades. And now Italy must begin to prepare itself for the biggest nightmare of all: the gradual tightening of the ECB’s monetary policy. “Inflation is gradually returning to the area of the 2% target, while in the United States a monetary tightening is taking place,” Vegas said. The German government is exerting mounting pressure on the ECB to begin tapering QE before elections in September. So, too, is the Netherlands whose parliament today treated ECB President Mario Draghi to a rare grilling. The MPs ended the session by presenting Draghi with a departing gift of a solar-powered tulip, to remind him of the country’s infamous mid-17th century asset price bubble and financial crisis.

For the moment Draghi and his ECB cohorts refuse to yield, but with the ECB’s balance sheet just hitting 38.7% of Eurozone GDP, 15 %age points higher than the Fed’s, they may ultimately have little choice in the matter. As Vegas points out, for Italy (and countries like it), that will mean having to face a whole new situation, “in which it will no longer be possible to count on the external support of monetary leverage.” This is likely to be a major problem for a country that has grown so dependent on that external support. According to the Bank for International Settlements, in 2016, international banks in particular those in Germany reduced their exposure to Italy by 15%, or over $100 billion, half of it in the last quarter of the year. ECB intervention helped plug the shortfall, at least for a while.

But the ECB has already reduced its monthly purchases of European sovereign debt instruments, from €80 billion to just over €60 billion. As the appetite for Italian government debt falls, the yields on Italian bonds will rise. The only market participants seemingly still willing and able (for now) to increase their purchase of Italian debt are Italian banks. In his address, Vegas proposed introducing a safeguard threshold of €100,000 for the banks’ bondholders, many of whom are ordinary Italian citizens, with combined holdings worth some €200 billion, who were told by the banks that their bonds were a secure investment. Not any more. “The management of crises may require timely intervention that is not compatible with the mechanisms in Frankfurt and Brussels,” Vegas added.

To get his point across, he issued a barely veiled threat in Frankfurt and Brussels’ direction — that of Italy’s exit from the Eurozone, a prospect that should not be altogether discounted given the recent growth of anti-euro sentiment and rising political instability in Italy. So he threatened: “Merely the announcement of a return to a national currency would provoke an immediate outflow of capital that would seriously jeopardize Italy’s ability to refinance the world’s third biggest public debt.”

Greece will spend at least three-and-a-half years under the restrictions of capital controls as their abolition is not expected to come any earlier than the end of 2018, according to a competent credit sector source. The next step in terms of their easing will come after the completion of the bailout review and the disbursement of the funding tranche, provided banks see some recovery in deposits. Sources say that the planning provides primarily for helping enterprises by increasing the limit on international transactions concerning product imports or the acquisition of raw materials. Almost two years after the capital controls were imposed, by next Tuesday, according to the agreement with the creditors, the Bank of Greece and the Finance Ministry have to present a road map for the easing of restrictions.

The road map is already being prepared and according to sources it will not contain any dates for the easing of controls but rather will record the conditions necessary for each step to come. Kathimerini understands that the conditions will be the following: the return of deposits, the reduction of nonperforming loans, the state’s access to money markets, the country’s inclusion in the ECB’s QE program, and the settlement of the national debt. “Ideally, by end-2018 we will be able to speak of an end to the controls. In any case, the restrictions on deposits will be the last to be lifted,” notes a senior banking source, referring to the cash withdrawal limit that currently stands at €840 per 14 days. The Hellenic Bank Association’s Executive Committee will meet on Wednesday to discuss proposals for the gradual easing of restrictions.

The bankers’ proposals will constitute an updated version of those tabled in November 2016; they will likely include the introduction of a monthly limit of 2,000 euros for cash withdrawals and an increase in the withdrawal limit for funds originating from abroad from 30% to 60%. The drop in deposits over the first quarter of the year will make it harder for such proposals to be implemented for the time being.

Speaking of an “institutional intervention of landmark significance,” Prime Minister Alexis Tsipras heralded on Wednesday the creation of a new primary healthcare system to be based on local health centers staffed with general practitioners. The aim is to set up 239 such centers by the end of the year, employing 3,000 family doctors and nursing staff, Tsipras said in a speech at a health center in Thessaloniki. The first 60 of those centers are to start operating by the summer, the premier said, noting that poorer areas will be prioritized. “If you were to ask me what I want to be left behind after the years of governance by SYRIZA and ANEL,” he said, referring to junior coalition partner Independent Greeks, “I would say a very essential landmark health sector reform with the creation of primary healthcare.”

Tsipras also took the opportunity to lash out at the political opposition, accusing previous governments of having a plan for “the passive privatization of the health sector.” As for the national federation of Greek hospital workers (POEDIN), which has railed against the current government for cutbacks in the health sector, Tsipras hit back, calling it “a trade union that has secured privileges.” The prime minister added that his government remained determined to fight corruption in the health sector, referring to alleged scandals embroiling the Hellenic Center for Disease Control and Prevention (KEELPNO) and the Swiss pharmaceuticals firm Novartis. “Everything will come to light,” he said.

The Turkish Coast Guard published alleged official maps and documents claiming half of the Aegean Sea belong to Turkey. In this sense, Ankara claims to won dozens of Greek islands, the entire eastern Aegean from the island of Samothraki in the North to Kastelorizo in the South. The maps and claims have been uploaded on the website of the Turkish Coast Guard in the context of a 60-page report about the activities of the TCG in 2016. On page 7 and 13 of the report, the maps allegedly show Turkey’s Search And Rescue responsibility area. The maps show half of the Aegean Sea and also a very good part of the Black Sea, where Turkey’s SAR area coincides with the Turkish Exclusive Economic Zone (EEZ). Turkey did not signed the convention in order to not be obliged to recognize the Greek EEZ.

The United Nations Convention on the Law of the Sea (UNCLOS), also called the Law of the Sea Convention or the Law of the Sea treaty, is the international agreement that resulted from the third United Nations Conference on the Law of the Sea (UNCLOS III), which took place between 1973 and 1982. The Law of the Sea Convention defines the rights and responsibilities of nations with respect to their use of the world’s oceans, establishing guidelines for businesses, the environment, and the management of marine natural resources. The most significant issues covered were setting limits, navigation, archipelagic status and transit regimes, exclusive economic zones (EEZs), continental shelf jurisdiction, deep seabed mining, the exploitation regime, protection of the marine environment, scientific research, and settlement of disputes. Turkey started to claim areas in the Aegean Sea after 1997 when a Turkish ship sank near the Greek islet of Imia and Ankara sent SAR vessels.

Libya’s coastguard on Wednesday intercepted a wooden boat packed with almost 500 migrants after duelling with a German rescue ship and coming under fire from traffickers, the navy said. The migrants, who were bound for Italy, were picked up off the western city of Sabratha, said navy spokesman Ayoub Qassem. The German non-governmental organisation “Sea-Watch tried to disrupt the coastguard operation… inside Libyan waters and wanted to take the migrants, on the pretext that Libya wasn’t safe,” Qassem told AFP. Sea-Watch posted a video on Twitter of what it said was a Libyan coastguard vessel narrowly cutting across the bow of its ship.

“This EU-funded Libyan patrol vessel almost crashed (into) our civil rescue ship,” read the caption. Qassem also said the coastguard had come under fire from people traffickers, without reporting any casualties. The 493 migrants included 277 from Morocco and many from Bangladesh, said Qassem, and 20 women and a child were aboard the boat. All were taken to a naval base in Tripoli. There were also migrants from Syria, Tunisia, Egypt, Sudan, Pakistan, Chad, Mali and Nigeria, he added. According to international organisations, between 800,000 and one million people, mostly from sub-Saharan Africa, are currently in Libya hoping to make the perilous Mediterranean crossing to Europe.

Entomologists call it the windshield phenomenon. “If you talk to people, they have a gut feeling. They remember how insects used to smash on your windscreen,” says Wolfgang Wägele, director of the Leibniz Institute for Animal Biodiversity in Bonn, Germany. Today, drivers spend less time scraping and scrubbing. “I’m a very data-driven person,” says Scott Black, executive director of the Xerces Society for Invertebrate Conservation in Portland, Oregon. “But it is a visceral reaction when you realize you don’t see that mess anymore.” Some people argue that cars today are more aerodynamic and therefore less deadly to insects. But Black says his pride and joy as a teenager in Nebraska was his 1969 Ford Mustang Mach 1—with some pretty sleek lines. “I used to have to wash my car all the time. It was always covered with insects.”

Lately, Martin Sorg, an entomologist here, has seen the opposite: “I drive a Land Rover, with the aerodynamics of a refrigerator, and these days it stays clean.” Though observations about splattered bugs aren’t scientific, few reliable data exist on the fate of important insect species. Scientists have tracked alarming declines in domesticated honey bees, monarch butterflies, and lightning bugs. But few have paid attention to the moths, hover flies, beetles, and countless other insects that buzz and flitter through the warm months. “We have a pretty good track record of ignoring most noncharismatic species,” which most insects are, says Joe Nocera, an ecologist at the University of New Brunswick in Canada. Of the scant records that do exist, many come from amateur naturalists, whether butterfly collectors or bird watchers.

Now, a new set of long-term data is coming to light, this time from a dedicated group of mostly amateur entomologists who have tracked insect abundance at more than 100 nature reserves in western Europe since the 1980s. Over that time the group, the Krefeld Entomological Society, has seen the yearly insect catches fluctuate, as expected. But in 2013 they spotted something alarming. When they returned to one of their earliest trapping sites from 1989, the total mass of their catch had fallen by nearly 80%. Perhaps it was a particularly bad year, they thought, so they set up the traps again in 2014. The numbers were just as low. Through more direct comparisons, the group—which had preserved thousands of samples over 3 decades—found dramatic declines across more than a dozen other sites.

Such losses reverberate up the food chain. “If you’re an insect-eating bird living in that area, four-fifths of your food is gone in the last quarter-century, which is staggering,” says Dave Goulson, an ecologist at the University of Sussex in the United Kingdom, who is working with the Krefeld group to analyze and publish some of the data. “One almost hopes that it’s not representative—that it’s some strange artifact.”

Credit strategists are increasingly disturbed by a sudden and rare contraction of US bank lending, fearing a synchronised slowdown in the US and China this year that could catch euphoric markets badly off guard. One key measure of US corporate borrowing is falling at the fastest rate since the onset of the Lehman Brothers crisis. Money supply growth in the US has also slowed markedly. These monetary and credit signals tend to be leading indicators for the real economy. Data from the US Federal Reserve shows that the $2 trillion market for commercial and industrial loans peaked in December. The sector has weakened abruptly as lenders tighten credit, especially for non-residential property. Over the last three months it has dropped at a rate of 5.4pc on annual basis, a pace of decline not seen since December 2008.

The deterioration in the broader $9 trillion market for loans and leases has been less dramatic but it too is shrinking, falling at a 1.6pc rate on a three-month basis. “Corporate lending has ground to a halt and I am staggered that the Fed is raising rates. They have made a very big mistake,” said Patrick Perret-Green from AD Macro. Credit experts at several big US banks have issued warnings over recent days, albeit sotto voce. “We’ve been surprised how little attention the slowdown in US bank lending has garnered,” said Matt King, global credit strategist at Citigroup.

While they are not yet alarmed, their concerns are worth heeding. Credit has tended to pick up signs of trouble several weeks before equity markets in recent episodes of financial stress. “Without another big dose of momentum, the cracks in the global reflationary consensus are liable to grow bigger. All around, existing trends are being called into question,” he said. Net corporate bond issuance has also stalled, indicating that borrowing by US firms as a whole is in decline. “So much for a Trump-driven expansion. Beneath the surface, we think a seismic battle is taking place,” he said.

Elga Bartsch and Chetan Ahya from Morgan Stanley said the credit squeeze is a warning sign and needs watching closely. “On our estimates, the credit impulse turned negative at the end of 2016. We have not seen such a sharp deceleration in bank lending to US corporates since the Great Financial Crisis,” they said. “Historically, credit downturns have led recessions. The plunge could reignite concerns that a highly leveraged US corporate sector may react strongly to even limited interest rates increases,” they said.

[..] Money and credit are certainly not flashing warnings of an imminent crisis, but they are hard to square with the exuberant view of investors that the world is on the cusp of an accelerating economic boom. That boom may already have peaked. The massive stimulus injected by the global authorities last year to counter the Chinese currency scare and any fall-out from Brexit is by now fading, and it is too early to tell whether business will pick up the baton. Any soft patch could all too easily combine with a slowdown in China as the country taps the brakes after an extreme episode of fiscal prime-pumping in 2016. Regulators are clamping down on property speculation and trying to rein in forms of pyramid lending, causing a sharp rise in Shibor lending rates. The worry in China is a maturity mismatch. Huge sums have been borrowed on the short-term markets. These debts have to be rolled over constantly to cover long-term liabilities. It was this sort of mismatch that brought down Northern Rock and Lehman Brothers.

[..] Weak US indicators are clearly at odds with the Trump rally on Wall Street, which has pushed equity valuations to nose-bleed levels. Kevin Gaynor from Nomura says his model of asset pricing suggests markets are in effect assuming global growth of 5pc and earnings increases of 30pc a year. These are heroic. “There is a time decay on this new temporary equilibrium,” he notes acidly. What is so disturbing is that each extra dollar of new debt now generates just $0.17 of extra GDP in the US, down from around $0.75 in the 1960s. Much of the corporate debt built up in this cycle has been to buy back stock or pay dividends.

As members of Congress in Washington debate raising the minimum required to obtain a U.S. immigrant investor visa from $500,000 to $1.35 million, concern about the hike has set off a scramble among wealthy would-be participants in China. “Some clients are demanding that we make sure their applications are submitted before April 28,” the date the program expires unless extended or amended by Congress, said Judy Gao, director of the U.S. program at Can-Reach (Pacific), a Beijing-based agency that facilitates so-called EB-5 Immigrant Investor visas. “We’re working overtime to do that.” China’s wealthy, using not-always-legal means to skirt capital controls to get their money out and at the same time gain residency in the U.S., are continuing to dwarf all others as the largest participants in the EB-5 program, despite heightened measures by the Chinese government.

[..] Because Chinese individuals are limited to exchanging $50,000 worth of yuan a year, a 10th of what the EB-5 program requires, some agents are advising clients who don’t already have assets offshore to use a means nicknamed “smurfing” to move their money. “Our suggestion to the client is to open three to four personal accounts in the U.S. or line up three to four friends’ accounts, so they can split the money and wire it to different personal accounts without being put on a blacklist by the Chinese authorities,” said a Shanghai-based real estate agent who gave the surname Dong. “It may require a trip to the States to do so to facilitate the process.” [..] While the government in Beijing spent much of 2016 working to stop its citizens sending money abroad in order to stabilize its declining currency and foreign reserves, Chinese investors’ use of EB-5 continued anyway, totaling $3.8 billion in the fiscal year that ended Sept. 30.

If the Society for Worldwide Interbank Financial Telecommunication (SWIFT) is shut down in Russia, the country’s banking system will not crash, according to Central Bank Governor Elvira Nabiullina. Russia has a substitute. “There were threats that we can be disconnected from SWIFT. We have finished working on our own payment system, and if something happens, all operations in SWIFT format will work inside the country. We have created an alternative,” Nabiullina said at a meeting with President Vladimir Putin on Wednesday. She also added that 90% of ATMs in Russia are ready to accept the Mir payment system, a domestic version of Visa and MasterCard. Izvestia daily reported that as of January 2016, 330 Russian banks had been connected to the SWIFT alternative, the system for transfer of financial messages (SPFS).

In 2014 and 2015, when the crisis in relations between Russia and the West were at their peak over Crimea and eastern Ukraine, some Western politicians urged disconnecting Russia from SWIFT. In November 2015, Nabiullina said the SPFS was close to being completed. The central bank’s website says the system was established “as an alternative channel for interbank cooperation with the aim of ensuring the guaranteed and uninterrupted provision of services for the transmission of electronic messages on financial transactions.” At present, the system has some drawbacks. It doesn’t work from 9pm to 5am Moscow time and costs up to five cents per wire transfer, which is regarded expensive.

Turkish President Tayyip Erdogan, who accuses Chancellor Angela Merkel of using “Nazi methods” against Turks in Germany, is setting back their integration by years, Finance Minister Wolfgang Schaeuble has said. Berlin is growing increasingly frustrated about Erdogan repeatedly accusing it of applying “Nazi methods” by banning rallies aimed at drumming up support among Turks in Germany for a referendum that would strengthen the power of his presidency. Turks workers began moving to Germany in the 1960s and the country now has about 3 million people of Turkish background. Some are fully integrated while others live in ethnic communities with less contact with the majority population.

“Erdogan’s rhetoric makes me stunned,” Schaeuble, a veteran member of Merkel’s Christian Democratic (CDU) party, told the Welt am Sonntag weekly newspaper. “In a short time, it wilfully destroys the integration that has grown over years in Germany. The repair of the damage will take years,” he said. Erdogan said in a speech in Istanbul on Sunday: “You call the president of the Turkish Republic a dictator. When we call them fascists, they get annoyed. When we call them Nazis, they get annoyed.” “You are fascists, you are. Be annoyed as much as you want with Nazi practices. If you draw swastikas on the walls of our mosques and don’t hold anyone accountable, you cannot take off this stain,” Erdogan said.

The European Union will disappear, French presidential candidate Marine Le Pen told a rally on Sunday, aiming to re-enthuse core supporters in the final four weeks before voting gets underway. Buoyed by the unexpected election of Donald Trump in the United States and by Britain’s vote to leave the EU, the leader of the anti-EU and anti-immigrant National Front (FN) party, told the rally in Lille that the French election would be the next step in what she called a global rebellion of the people. “The European Union will die because the people do not want it anymore,” Le Pen said to loud cheers and applause. “The time has come to defeat globalists,” she said, adding: “My message is one of emancipation, of liberation … a call for all the patriots to gather behind our flag.”

Opinion polls forecast that Le Pen will do well in the April 23 first round of the presidential election only to lose the May 7 run-off to centrist Emmanuel Macron. Its anti-EU, anti-euro stance is one of the FN’s standard-bearing policies, both a mark of its anti-establishment stance that pleases grass-roots supporters and attracts voters angry with globalization, and a likely obstacle to its quest for power in a country where a majority oppose a return to the franc. Le Pen has over the past few months tried to accommodate this opposition to leaving the euro by continuing to criticize the unpopular EU while telling voters she would not abruptly pull France out of the bloc or the euro but instead hold a referendum after six months of renegotiating the terms of France’s EU membership.

On Sunday she told the rally she would seek to replace the EU by “another Europe,” which she called “the Europe of the people,” based on a loose cooperative of nations. “It must be done in a rational, well-prepared way,” she told Le Parisien in an interview published earlier on Sunday. “I don’t want chaos. Within the negotiation calendar I want to carry out … the euro would be the last step because I want to wait for the outcome of elections in Germany in the fall before renegotiating it.”

The rise of populism has rattled the global political establishment. Brexit came as a shock, as did the victory of Donald Trump. Much head-scratching has resulted as leaders seek to work out why large chunks of their electorates are so cross. The answer seems pretty simple. Populism is the result of economic failure. The 10 years since the financial crisis have shown that the system of economic governance which has held sway for the past four decades is broken. Some call this approach neoliberalism. Perhaps a better description would be unpopulism. Unpopulism meant tilting the balance of power in the workplace in favour of management and treating people like wage slaves. Unpopulism was rigged to ensure that the fruits of growth went to the few not to the many.

Unpopulism decreed that those responsible for the global financial crisis got away with it while those who were innocent bore the brunt of austerity. Anybody seeking to understand why Trump won the US presidential election should take a look at what has been happening to the division of the economic spoils. The share of national income that went to the bottom 90% of the population held steady at around 66% from 1950 to 1980. It then began a steep decline, falling to just over 50% when the financial crisis broke in 2007. Similarly, it is no longer the case that everybody benefits when the US economy is doing well. During the business cycle upswing between 1961 and 1969, the bottom 90% of Americans took 67% of the income gains. During the Reagan expansion two decades later they took 20%.

During the Greenspan housing bubble of 2001 to 2007, they got just two cents in every extra dollar of national income generated while the richest 10% took the rest. The US economist Thomas Palley* says that up until the late 1970s countries operated a virtuous circle growth model in which wages were the engine of demand growth. “Productivity growth drove wage growth which fueled demand growth. That promoted full employment, which provided the incentive to invest, which drove further productivity growth,” he says.

China, one of the oldest and greatest civilizations on Earth, went through the terrible period of ‘humiliation’. Divided, occupied and plundered by the West, it has never forgotten nor forgiven. Now the Chinese Communist state and its mixed economy are helping countries in virtually all parts of the world, from Oceania and Latin America, to the Middle East and especially Africa, to survive and to finally stand on their own feet. Despite all the vitriolic propaganda regurgitated by the West (those people in Europe or North America who know close to zero about Africa or China,habitually passing ‘confident’ and highly cynical ‘judgments’ about China’s involvement in the poor world; judgments based exclusively on the lies and fabrications produced by the Western media), China has been gaining great respect and trust in virtually all corners of the globe.

The Chinese people and their government are now standing firmly against Western imperialism. They will not allow any recurrence of the disgraceful and dreary past. The West is provoking this mighty and optimistic nation, pushing it into a terrible confrontation. China doesn’t want any military conflict. It is the most peaceful, the most non-confrontational large nation on Earth. But it is becoming clear that if pushed against the wall, this time it will not compromise: it will fight. In the last years I have spoken to many Chinese people, as I traveled to all corners of the country, and I’m convinced that by now the nation is ready to meet strength with strength. Such determination gives hope to many other countries on our Planet. The message is clear: the West cannot do whatever it wants, anymore. If it tries, it will be stopped. By reason or by force!

Russia is ready again, too. It is standing next to China, enormous and indignant. Go to Novosibirsk or Tomsk, to Khabarovsk, Vladivostok or Petropavlovsk in Kamchatka. Talk to Russian people and you will soon understand: almost nobody there believes or respects the West, anymore. Throughout history, Russia was attacked and ransacked from the West. Millions, tens of millions of its people were murdered, literally exterminated. And now, the nation is facing what some consider to be yet another imminent attack. Like the Chinese people, Russians are unwilling to compromise, anymore. The old Russian forecast is once again alive, that very one professed by Alexander Nevsky: Go tell all in foreign lands that Russia lives! Those who come to us in peace will be welcome as a guest. But those who come to us sword in hand will die by the sword! On that Russia stands and forever will we stand!

The numerous paradoxes that will haunt Donald Trump in the coming months were on full display during the recent Senate vote to undo privacy legislation that was passed in the last few years of the Obama administration. As part of a broader effort to treat internet service providers and telecoms operators as utility companies, Obama imposed restrictions on what these companies could do with all the user data from browsers and apps. Emboldened by Trump, the Republicans have just allowed these businesses to collect, sell and manipulate such data without user permission. From the short-sighted domestic perspective, it seems like a boon to the likes of Verizon and AT&T, especially as they increasingly find themselves confronting their data-rich counterparts in Silicon Valley.

Telecoms companies have been complaining (not entirely without reason) that the Obama administration favoured the interests of Google and Facebook which, invoking the lofty rhetoric of “keeping the internet free” only to defend their own business agenda, have traditionally faced somewhat lighter regulation. The Democrats, always happy to attack Trump, have jumped on the issue, warning that the Senate vote would foster ubiquitous and extensive surveillance by the telecoms industry – and Silicon Valley, of course, would never commit such sins. Under the new rules, complained Bill Nelson, a senator from Florida, “your broadband provider may know more about your health – and your reaction to illness – than you are willing to share with your doctor”.

Never mind that Google and Facebook already know all this – and much more – and generate little outrage from the Democrats. The Democrats, of course, only have themselves to blame for such ineptitude. From the early 1980s onwards, centre-left movements on both sides of the Atlantic no longer discussed technology policy in terms of justice, fairness or inequality. Instead, they preferred to emulate their neoliberal opponents and frame choices – about technology policy, but also about many other domains – in terms of just one goal that rules supreme above all other: innovation. The problem with building a political programme on such flimsy economistic foundations is that it immediately opens the door to competing narratives of just what kind of policy produces more innovation.

While airport terminal architecture has a solid history of style and innovation, rarely is a proposal put forth to utterly redesign the runway. But that’s precisely the aim of Henk Hesselink, a Dutch scientist working with the Netherlands Aerospace Centre. Dubbed the “endless runway”, Hesselink’s brainchild is a 360-degree landing strip measuring more than two miles in diameter. Since airplanes would be able to approach and take off from any direction around the proposed circle, they wouldn’t have to fight against crosswinds.

And three planes would be able to take off or land at the same time. Hesselink’s team uses flight simulators and computerized calculations to test the unconventional design, and have determined that round airports would be more efficient than existing layouts. With a central terminal, the airport would only use about a third of the land of the typical airport with the same airplane capacity. And there’s an added benefit to those living near airports: Flight paths could be more distributed, and thereby making plane noise more tolerable. So far, there have been no plans to actually build a circular runway, but Hesselink’s research continues on.

Harvard engineers who launched the world’s biggest solar geoengineering research program may get a dangerous boost from Donald Trump, environmental organizations are warning. Under the Trump administration, enthusiasm appears to be growing for the controversial technology of solar geo-engineering, which aims to spray sulphate particles into the atmosphere to reflect the sun’s radiation back to space and decrease the temperature of Earth. Sometime in 2018, Harvard engineers David Keith and Frank Keutsch hope to test spraying from a high-altitude balloon over Arizona, in order to assess the risks and benefits of deployment on a larger scale. Keith cancelled a similar planned experiment in New Mexico in 2012, but announced he was ready for field testing at a geoengineering forum in Washington on Friday.

“The context for discussing solar geoengineering research has changed substantially since we planned and funded this forum nearly one year ago,” a forum briefing paper noted. While geoengineering received little favour under Obama, high-level officials within the Trump administration have been long-time advocates for planetary-scale manipulation of Earth systems. David Schnare, an architect of Trump’s Environmental Protection Agency transition, has lobbied the US government and testified to Senate in favour of federal support for geoengineering. He has called for a multi-phase plan to fund research and conduct real-world testing within 18 months, deploy massive stratospheric spraying three years after, and continue spraying for a century, a duration geoengineers believe would be necessary to dial back the planet’s temperature.

“Clearly parts of the Trump administration are very willing to open the door to reckless schemes like David Keith’s, and may well have quietly given the nod to open-air experiments,” said Silvia Riberio, with technology watchdog ETC Group. “Worryingly, geoengineering may emerge as this administration’s preferred approach to global warming. In their view, building a big beautiful wall of sulphate in the sky could be a perfect excuse to allow uncontrolled fossil fuel extraction. We need to be focussing on radical emissions cuts, not dangerous and unjust technofixes.” [.] “Geoengineering holds forth the promise of addressing global warming concerns for just a few billion dollars a year,” he said in 2008, before helping launch a geoengineering unit while he ran the right-wing think tank American Economic Enterprise. “We would have an option to address global warming by rewarding scientific innovation. Bring on American ingenuity. Stop the green pig.”

A month ago, the secretary general of the United Nations, António Guterres, warned that 20 million people would fall into famine if his aid agencies could not corral $4.4 billion by the end of March. It is almost the end of March, and so far, the United Nations has received less than a tenth of the money – $423 million, according to its Office for the Coordination of Humanitarian Affairs. The funding appeal, and the paltry response, comes as the Trump administration is poised to make sharp cuts to its foreign aid budget, including for the United Nations. Historically, the United States has been the agency’s largest single donor for humanitarian aid. For all four countries at risk — Nigeria, Somalia, South Sudan and Yemen – the United States has given $277 million so far this year, not all of it for famine relief.

The conditions for famine are specific and not easy to meet, which is why the last time a famine was declared was in Somalia in July 2011, after 260,000 had died of hunger and related complications. The three criteria for declaring a famine are when one in five households in a certain area face extreme food shortages; more than 30% of the population is acutely malnourished; and at least two people for every 10,000 die each day. A famine has already been declared in a swath of South Sudan. A similar risk looms over Somalia, still reeling from years of conflict, and Yemen, where Houthi insurgents are battling a Saudi-led coalition supported by the United States and Britain. In northern Nigeria, a famine could already be underway, according to an early warning system funded by the United States Agency for International Development.

But the security situation is so bad there that aid workers have been unable to assess levels of hunger. On Thursday, Somalia’s newly elected president, Mohamed Abdullahi Mohamed, told the Security Council by videolink from Mogadishu that half the population faces acute food shortages. The United Nations says it needs the $4.4 billion to deliver food, clean water and basic medicine like oral rehydration salts to avert diarrhea deaths among children. Only 8% of the money the agency needs for Yemen has been funded; for Nigeria, 9%; for South Sudan, 18%; and for Somalia, 32%. Of the 20 million who are at risk of famine are 1.4 million children, who are most vulnerable. To put the $4.4 billion appeal in perspective, Britain has made slightly less, $4.1 billion, from weapons sales to Saudi Arabia in the two years since the war began in Yemen.

Greece will cease taking back refugees under the controversial Dublin Regulation, as the country’s limited capacities to host people are already on the brink of collapse, the Greek migration minister announced in an interview. As the European Commission pressures Athens to re-implement the Dublin Regulation – stipulating that refugees can be returned to the first EU state they arrived in – the Greek migration minister told Spiegel his country is not in a position to do so. The agreement was put on hold for Greece back in 2011 over problems in the country’s asylum system. “Greece is already shouldering a heavy burden,” Ioannis Mouzalas, the migration minister, said. “We accommodate 60,000 refugees… and it would be a mistake to make Greece’s burden heavier by the revival of the Dublin agreement,” he said, also adding that Germany, the primary destination for most refugees, “wants countries where refugees arrive first to bear a large portion of the burden.”

Under the Dublin Regulation, the European state where the asylum-seeker first arrives in the EU is responsible for examining an asylum claim. Refugees are fingerprinted in their first country of arrival to ensure irrefutable evidence of their entry. However, rights groups warn that imminent transfers from other EU countries back to Greece in line with the regulations are likely to cause more refugees than ever to go underground in western European countries, as many are desperate to stay there because of family links or successful attempts to start a new life. The scheme also adds even greater pressure to existing refugee facilities in Greece and beyond. Asked if Athens is ruling out implementation of the Dublin Regulation, Mouzalas answered in the affirmative, adding, “I want the Germans to understand that this is not because of political or ideological reasons, or failure to appreciate Germany’s assistance.” “Greece simply has no capacities to cope with additional arrival of refugees,” he said.

Greece is examining US proposals for military cooperation which would widen ties to an extent not seen in the last three decades, Kathimerini understands. According to sources, Washington’s desire for stronger ties stems from its view that Greece has a significant geopolitical role to play as a pillar of stability in a volatile region. More specifically, Washington has proposed the participation of a Greek military vessel in a carrier battle group (CVBG), which consists of an aircraft carrier and a large number of escort vessels. According to the US proposals, the participation of a Greek vessel in the CVBG will be accompanied by the renewal of the Mutual Defense Cooperation Agreement (MDCA) between the two countries.

The MDCA is of utmost significance as it is through this pact that American military forces are permitted to use the Souda naval base on Crete. During a meeting last week US Secretary of Defense James Mattis and Defense Minister Panos Kammenos discussed the option of renewing the agreement for five to 10 years instead of each year, as has been the case to date. The Americans reportedly want to renew the deal every five years, as they want to expand the scope of their activities at the base. Sources have told Kathimerini that the only possible obstacle to the deal’s renewal on a five-year basis is that it must receive approval in Parliament, and the leftist-led coalition fears the possibility of dissent emanating from lawmakers of ruling SYRIZA.

The capital controls were originally supposed to be a one-off measure that would be removed in a matter of months, with Prime Minister Alexis Tsipras stating in September 2015 that they would be lifted in early 2017. Today, 21 months since they were imposed, the capital controls are still here, and with the drop in bank deposits, it appears more likely they will be tightened than relaxed or lifted. The truth is that a full Greek recovery will not be possible as long as the capital controls remain, but the economy remains mired in uncertainty and the banks have not seen their CCC+ credit rating improve.

Bank officials note it will be a long time before the restrictions are removed, and this will require the consolidation of a basic sense of confidence among citizens that the worst is over. This is particularly difficult today given that few bailout reviews have been completed according to schedule in the last seven years – and the ongoing second review of the third bailout program was supposed to have finished 13 months ago, in February 2016. Banks therefore fear that if deposit outflow continues as it has done in the first quarter of the year, further controls are quite likely.

The Fed, the debt ceiling and the Dutch election. All this Wednesday, March 15.

The Ides of March (Latin: Idus Martiae, Late Latin: Idus Martii) is a day on the Roman calendar that corresponds to 15 March. It was marked by several religious observances and became notorious as the date of the assassination of Julius Caesar in 44 BC..

As much as Julius Caesar’s assassination on the Ides of March signaled an inflection point in Roman history, March 15 may also mark a watershed moment for the U.S. stock market with the Federal Reserve poised to seek closure to its loose monetary policy regime. “The coming week has the potential to be huge for trading opportunities,” said Colin Cieszynski, chief market strategist at CMC Markets, in a note. “Everything centers around the Ides of March…with a number of key developments coming out both on [March] 15 and 16.” The Fed’s monetary policy decision on Wednesday will take center stage with markets nearly 100% certain of a rate increase following solid February jobs data. The focus will be on the Fed’s statement rather than the decision itself.

“The commentary will help determine how many more hikes the market has to get used to and then when it has to start preparing,” said Bob Pavlik at Boston Private Wealth. If the central bank strikes a hawkish tone, it could trigger a selloff in the market although Pavlik expects Fed Chairwoman Janet Yellen to keep her comments positive to avoid upsetting the market. Still, investors should keep in mind is that this is the third hike in the current tightening cycle, and history is working against the market. Since 1971, stocks have fallen an average of 2.2% on the third hike over the following three months, said Tom Lee at Fundstrat Global Advisors. To be sure, there are always exceptions. Stocks rose sharply in the following three months after the Fed hiked for a third time in both June 1984 and September 2004, he said.

Most analysts agree that stocks have largely priced in a rate hike of 25 basis points. But there are still bargains to be found in automobile, semiconductors, consumer finance and insurance sectors, which are cheap but benefit from a hawkish Fed, according to Bank of America Merrill Lynch. Aside from the Fed, eight other central banks are scheduled to meet next week, including the Bank of Japan and the Bank of England, providing a quick insight into whether other countries will adjust their policies in response to the Fed. Meanwhile, Trump is expected to present his preliminary budget request to the Congress on Thursday, outlining his administration’s priorities. It will serve as a critical test for whether the euphoria that propelled stocks to record territory in anticipation of tax reforms and ramped up fiscal spending under President Donald Trump is warranted.

The S&P 500 has risen 4.5% and the Dow Jones Industrial Average DJIA has gained 5.3% in the first 50 days since Trump took office, the best ever for a GOP president. However, if Trump’s budget proposal fails to meet the market’s expectations, it could spark a major unwinding in positions, leading to a sharp drop in prices. “Thursday could be the day the instant speed of markets crashes into the glacial speed of government,” said Cieszynski.

It is surely one of the primary reasons why many if not most people have so much trouble accepting the trouble the economy is in. With record high stock prices leading to record levels of household net worth, it seems utterly inconsistent to claim those facts against a US economic depression. Weakness might be more easily believed as some overseas problem, leading to only ideas of decoupling or the US as the “cleanest dirty shirt” – the US economy has problems, but how bad can they be? Yet, despite asset price levels and even record debt, all those prove is just how disconnected those places have become from what used to be an efficient way to redistribute financial resources.

According to the Fed’s Z1 report, Household net worth climbed by $2 trillion in Q4 alone to $92.8 trillion. That is a 69% increase from the low in Q1 2009, even though Final Sales to Domestic Purchasers have grown by just 30% in that same time. The wealth effect is dead, or, more specifically, it never was.

From the view of net worth, the increase to record debt levels seems manageable. From the more appropriate view of income and economy, it does not, even though US debt levels have grown more slowly post-crisis. That would mean debt is partway between assets and economy, sort of splitting the difference of what monetary policy believes and what it, at best, “achieved.”

When it comes to making money, consistency may be almost as important as quantity. Families that had large fluctuations in their incomes — even when it was a 25% gain — were more likely than those with stable incomes to say they wouldn’t be able to come up with $2,000 for an unexpected need, according to a study by Pew Charitable Trusts released this week. The study looked at “income volatility” among more than 5,600 families the term for a year-over-year change in annual income of 25% or more, between 2014 and 2015. “Volatility in general, regardless of the direction, is very disruptive to families,” said Erin Currier, the director of Pew’s financial security and mobility project, who called that volatility “a roller coaster” for many Americans. “It makes it harder for them to plan.”

More than a third of those households surveyed experienced these large changes in their incomes from 2014 to 2015, Pew found. That number has been fairly consistent over time, Currier said. Households of various incomes see major dips and drops, but since volatility is measured as a percentage change in income, those with lower incomes had the lowest threshold for qualifying as having volatile incomes, Pew’s report says. In fact, there were more households in the years Pew studied that saw a gain in their incomes than those who saw dips, which is probably less surprising given that the economy was growing in those years and many families were finally getting back on their feet after the Great Recession.

Roller coaster finances are more common than many people realize. A quarter of people saw their incomes rise or drop by 30% or more, according to an analysis of 27 million Chase bank accounts between 2013 and 2014 by the J.P. Morgan Chase Institute JPM, -0.32% a J.P. Morgan Chase think tank. Those fluctuations were about the same, regardless of account holders’ incomes. One problem: Although income and spending both change, they don’t always change in the same direction, which can create budgeting problems. Put bluntly, some people keep spending even when they and their families experience a reversal of fortune.

Developing countries are struggling with steep rises in their debt payments after being hit by a double whammy of lower commodity prices and a stronger dollar, with more pain to come once the US central bank raises interest rates this week, campaigners warn. The Jubilee Debt Campaign said that some of the world’s poorest countries have seen the cost of repaying their debts – as a proportion of government revenue – hit the highest level for a decade. Government coffers have been depleted by lower revenues from commodity exports and the size of dollar-denominated debts has risen as the US currency has strengthened.

The dollar has risen more than 6% against a basket of other big currencies over the past six months as investors anticipate that big spending plans by President Donald Trump will boost US growth and that the US Federal Reserve will follow up December’s interest rate rise with more increases this year. After the latest US jobs numbers on Friday beat expectations, a rate rise from the Fed’s policymakers when they meet this Wednesday is seen as imminent among investors. That would further increase the cost of debt payments for poor countries, which have taken out big loans in recent years from western countries where interest rates have been low, said the Jubilee Debt Campaign.

Tim Jones, economist at the campaign group, warned the rising cost of debt payments was putting developing countries under extra strain just when they needed to be spending more money at home to meet the UN sustainable development targets – a series of goals for human development intended to be achieved by 2030. “The rapid increase in debt payments in many countries comes after a boom in lending, a fall in commodity prices, the rising value of the US dollar and now increasing dollar interest rates,” said Jones. He warned there was a danger that loans from the IMF and other lenders would be used to bail out “reckless lenders” who were at risk of not getting repayments from crisis-hit countries. That would lead to year of economic stagnation, just as in debt-laden Greece, Jones added. “Instead, reckless lenders should be made to shoulder some of the costs of recent economic shocks by accepting lower payments,” he said.

[..] expectations of a Fed rate hike March 15 are now near 100% based on surveys of economists and fed funds futures contracts. Markets are looking at things like business cycle indicators, but that’s not what the Fed is watching these days. The Fed is desperate to raise rates before the next recession (so they can cut them again) and will take every opportunity to do so. But as I’ve said before, the Fed is getting ready to raise into weakness. It may soon have to reverse course. My view is that the Fed will raise rates 0.25% every other meeting (March, June, September and December) until 2019 unless one of three events happens — a stock market crash, job losses or deflation. But right now the stock market is booming, job creation is strong and inflation is emerging. So none of the usual speed bumps is in place. The coast is clear for a rate hike this Wednesday.

But growth is being financed with debt, which has now reached epic proportions. A lot of money has been printed since 2007, but debt has expanded much faster. The debt bubble can be seen at the personal, corporate and sovereign levels. If the debt bubble bursts, things can get very messy. In a liquidity crisis, investors who think they have “money” (in the form of stocks, bonds, real estate, etc.) suddenly realize that those investments are not money at all — they’re just assets. When investors all sell their assets at once to get their money back, markets crash and the panic feeds on itself. What would it take to set off this kind of panic? In a super-highly leveraged system, the answer is: Not much. It could be anything: a high-profile bankruptcy, a failed deal, a bad headline, a geopolitical crisis, a natural disaster and so on. This issue is not the catalyst; the issue is the leverage and instability of the system.

The question posed was, “Who Bleeds When the Wolves Bite?” It’s the title of an evocative paper written by Leo Strine, the chief justice of the Delaware Supreme Court. By wolves, he means hedge funds, and his answer, found within a 113-page paper set to be published next month in the Yale Law Review, is that average American investors are the ones getting bit by the existing corporate-governance system. While little known in circles outside the highest ranks of corporate America, Strine’s voice is among one of the most powerful in the business community. That’s because two-thirds of American companies are legally based in Delaware, meaning corporate litigation often takes place in that state, so his opinions on such topics can hold tremendous sway.

Strine’s paper is one of the strongest repudiations to date of hedge-fund activism — or what critics of the industry describe as the practice of investors with major stock holdings aggressively forcing companies into changes that will quickly pump up stock prices, often without regard for those same companies’ long-term health. Strine looks at what he calls a “flesh and blood” perspective on how hedge funds, and specifically hedge-fund activists, are harmful to typical American investors. He calls regular Americans “human investors,” distinguishing from the “wolf packs” of hedge funds. Human investors are those who invest in the capital markets and save for events like retirement or college for their children, according to Strine. Strine’s main argument is that the “current corporate governance system … gives the most voice and the most power to those whose perspectives and incentives are least aligned with that of ordinary Americans.”

Strine’s critics — largely hedge funds and hedge fund advisers — privately criticized the paper, arguing that a justice should not be on the record condemning a group of people who tend to litigate in his court and the lower Delaware courts. Additionally, they say his paper does not offer much in the way of prescriptions for how to fix what he sees as a flawed system. They declined to be quoted, fearing retribution from Strine.

After his election in 1968, President Richard Nixon asked Robert Morgenthau, the US Attorney for the Southern District of New York, to resign. Morgenthau refused to leave voluntarily, saying it degraded the office to treat it as a patronage position. Nixon’s move precipitated a political crisis. The president named a replacement. Powerful politicians lined up to support Morgenthau. Morgenthau had taken on mobsters and power brokers. He had repeatedly prosecuted Roy Cohn, the sleazy New York lawyer who had been Senator Joe McCarthy’s right-hand man. (One of Cohn’s clients and protégés was a young New York City real estate developer named Donald Trump.) When Cohn complained that Morgenthau had a vendetta against him, Morgenthau replied, “A man is not immune from prosecution merely because a United States Attorney happens not to like him.”

Morgenthau carried that confrontational attitude to the world of business. He pioneered the Southern District’s approach to corporate crime. When his prosecutors took on corporate fraud, they did not reach settlements that called for fines, the current fashion these days. They filed criminal charges against the executives responsible. Before Morgenthau, the Department of Justice focused on two-bit corporate misdeeds—Ponzi schemes and boiler room operations. Morgenthau changed that. His prosecutors went after CEOs and their enablers—the accountants and lawyers who abetted the frauds or looked the other way. “How do you justify prosecuting a nineteen-year old who sells drugs on a street corner when you say it’s too complicated to go after the people who move the money?” he once asked. Morgenthau’s years as United States Attorney were followed by political success. He was elected New York County District Attorney in 1974, the first of seven consecutive terms for that office.

There are parallels between Morgenthau, and Preet Bharara, the U.S. attorney for the Southern District who was fired by President Trump this weekend. Like Morgenthau, the 48-year old Bharara leaves the office of US Attorney for the Southern District celebrated for taking on corrupt and powerful politicians. Bharara prosecuted two of the infamous “three men in a room” who ran New York state: Sheldon Silver, the Democratic speaker of the assembly and Dean Skelos, the Republican Senate majority leader. He won convictions of a startling array of local politicians, carrying on the work of the Moreland Commission, an ethics inquiry created and then dismissed by New York’s Gov. Andrew Cuomo. (This weekend, Bharara cryptically tweeted that “I know what the Moreland Commission must have felt like,” a suggestion that he was fired as he was pursuing cases pointed at Trump or his allies.)

But the record shows that Bharara was much less aggressive when it came to confronting Wall Street’s misdeeds. President Obama appointed Bharara in 2009, amid the wreckage of the worst financial crisis since the Great Depression. He inherited ongoing investigations into the collapse, including a probe against Lehman Brothers. He also inherited something he and his young charges found more alluring: insider-trading cases against hedge fund managers. His office focused obsessively on those. At one point, the Southern District racked up a record of 85-0 in those cases. (Appeals courts would later throw out two prominent convictions, infuriating him and dealing blows to several other cases.)

Sustained double-digit economic growth is possible when you begin with a wrecked economy. In Japan’s case, the country was recovering from World War II. China was recovering from Mao Zedong’s policies. Simply by getting back to work an economy will surge. If the damage from which the economy is recovering is great enough, that surge can last a generation. But extrapolating growth rates by a society that is merely fixing the obvious results of national catastrophes is irrational. The more mature an economy, the more the damage has been repaired and the harder it is to sustain extraordinary growth rates. The idea that China was going to economically dominate the world was as dubious as the idea in the 1980s that Japan would. Japan, however, could have dominated if its growth rate had continued. Since that was impossible, the fantasy evaporates — and with it, the overheated expectations of the world.

In 2008, China was hit by a double tsunami. First, the financial crisis plunged its customers into a recession followed by extended stagnation, and the appetite for Chinese goods contracted. Second, China’s competitive advantage was cost, and they now had lower-cost competitors. China’s deepest fear was unemployment, and the country’s interior remained impoverished. If exports plunged and unemployment rose, the Chinese would face both a social and political threat of massive inequality. It would face an army of the unemployed on the coast. This combination is precisely what gave rise to the Communist Party in the 1920s, which the Party today fully understands. So, a solution was proposed that entailed massive lending to keep non-competitive businesses operating and wages paid. That resulted in even greater inefficiency and made Chinese exports even less competitive.

The Chinese surge had another result. China’s success with boosting low-cost goods in advanced economies resulted in an investment boom by Westerners in China. Investors prospered during the surge, but it was at the cost of damaging the economies of China’s customers in two ways. First, low-cost goods undermined businesses in the consuming country. Second, investment capital flowed out of the consuming countries and into China. That inevitably had political repercussions. The combination of post-2008 stagnation and China’s urgent attempts to maintain exports by keeping its currency low and utilize irrational banking created a political backlash when China could least endure it — which is now.

China has a massive industrial system linked to the appetites of the United States and Europe. It is losing competitive advantage at the same time that political systems in some of these countries are generating new barriers to Chinese exports. There is talk of increasing China’s domestic demand, but China is a vast and poor country, and iPads are expensive. It will be a long time before the Chinese economy generates enough demand to consume what its industrial system can produce.

Iceland is back. The government at a hastily called press conference on Sunday in Reykjavik announced that effective Tuesday it will lift almost all of the remaining capital controls, allowing its citizens, corporations and pension funds full access to the global capital markets. The move ends an eight-year struggle to clean up after the 2008 banking collapse, which triggered the worst recession in more than six decades and enveloped the north Atlantic island of 340,000 people in political turmoil. Prime Minister Bjarni Benediktsson said this final step will “create more trust in the Icelandic economy,” with the most significant move being the removal of a requirement for businesses to return foreign exchange. “That will make direct foreign investment easier,” he said in an interview after the press conference.

The controls are being lifted as Iceland is booming, helped by a record surge in tourism. The economy is even at risk of overheating with money flowing back into the economy as the controls have been eased in steps. The economy last year surged 7.2%, driven by household spending and investments. Unemployment is down at about 3% and inflation is under control. The krona has rallied about 18% against the euro over the past year, in part as traders have been attracted to the nation’s higher interest rates. The government hopes these next moves will ease pressure on the currency to appreciate, according to Benediktsson. “We don’t have any exact hints as to what comes next,” he said. While pension funds have taken full use of exemptions that were granted in the past years, the public hasn’t rushed to invest abroad after other controls were eased, he said.

This talk on whether we can avoid another financial crisis, and what caused the last one, was arranged by New City Agenda and held in a committee room of the House of Commons. I cover what caused the crisis (credit), why mainstream economics erroneously ignores credit, and the empirical data showing which countries face continued stagnation, and which countries face a future private debt crisis.

Yes, the Conservative party that for a long time believed the state had no role to play in industrial policy is now rediscovering the wheel – but has dismissed Michael Heseltine, who did not need to rediscover it. And the Treasury is placing great emphasis on the importance of “productivity” – ie the supply side of the economy – to provide the future growth on which higher living standards and tax revenues ultimately depend.

For the uncomfortable truth, underlined by the Office for Budgetary Responsibility, the Institute for Fiscal Studies and the Resolution Foundation last week, is that, after a splurge of consumer spending largely financed by borrowing, the outlook for real incomes is pretty bleak – indeed, there are already signs of a slowdown, and the OECD is forecasting economic growth this year of a mere 1.6%. And the OBR’s post-Brexit forecasts are frightening. But austerity in the public sector is set to continue. Let no one be in doubt: this was a policy choice on the part of George Osborne in 2010, and it is a policy choice now. Underlying it all is the Conservative party’s obsession with shrinking the size of the state and minimising the so called “tax burden” – a “burden” which helps to ensure we have decent hospitals, schools and infrastructure generally.

There can be little doubt that, on his own terms, the decision of Chancellor Lawson in the 1988 budget to bring the top rate of income tax down from 60% to 40%, and the basic rate from 27% to 25%, was what is known in the trade as a “game changer”. Total taxation as a proportion of national income has been around 34% in recent years. But when the economy is operating close to capacity, as the OBR believes it now is, in a decent society the ratio of taxation to national income should be considerably higher – even close to 40% – in order to provide decent public services. For all their conciliatory talk, May and Hammond are pursuing Osborne’s austerity policies. Meanwhile, although for all his efforts Osborne failed to achieve anything like a budget surplus for the nation, he has managed – while capitalising on the lecture circuit upon his experience in office – to achieve a healthy budget surplus for himself. Some people are shameless.

Russia is planning to use “all sorts of dirty tricks” to meddle in the political life of European countries, British Foreign Secretary Boris Johnson warned, though he admitted there is “no evidence” that Moscow is actually involved in anything of the kind. “We have no evidence the Russians are actually involved in trying to undermine our democratic processes,” Johnson told British ITV’s Peston on Sunday show. “But what we do have is plenty of evidence that the Russians are capable of doing that,” he insisted adding that Russians “have been up to all sorts of dirty tricks.” Remarkably, Johnson made these statements just weeks before his visit to Russia, during which he will meet with his Russian counterpart, Sergey Lavrov. His visit would be the first made to Moscow by a British Foreign Minister in five years.

When asked what the UK’s approach to Russia should be now, he said that Britain needs to take “a twin-track approach” towards Russia. “As the prime minister has said, we’ve got to engage but we have to beware,” Johnson stated. Despite constantly saying there was solid proof that Russia had meddled in the affairs of other countries, such as by bringing down French TV stations and interfering in US elections, he failed to provide any concrete evidence to back his accusations. Johnson also implicated that Russia was involved in the situation in Montenegro, where a group of Serbian nationalists was arrested in October of 2016 suspected of planning to carry out armed attacks on the day of the country’s parliamentary elections.

The British Telegraph newspaper later reported that the group was sponsored and controlled by the Russian intelligence officers and had actually tried to stage a coup targeting its Prime Minister Milo Djukanovic with “the support and blessing” of Moscow. However, the paper’s report turned out to be based mostly on the assumptions of unidentified sources and Montenegrin Special Prosecutor for Organized Crime, Milivoje Katnic, confirmed that, despite the participation of several suspected “nationalists from Russia,” there was no “evidence that the state of Russia is involved in any sense.”

European Economic and Monetary Affairs Commissioner Pierre Moscovici has turned down a request from former Greek minister Anna Diamantopoulou for Brussels to make public the emergency plan it drafted in the summer of 2015 for the possibility of a Greek exit from the eurozone. Diamantopoulou, who also served as a European commissioner between 1999 and 2004, wrote to Moscovici earlier this year following a revival of Grexit speculation and asked for the plan to be published so Greeks could be aware of the dangers involved. However, Moscovici suggested in his response, which Diamantopoulou received a few days ago, that publishing the draft would simply fuel damaging speculation and would not be in the public interest as it would endanger financial, monetary and economic stability in Greece.

He also said that the document contains some highly sensitive issues. Parts of the plan, which is said to include emergency humanitarian aid for Greece, were discussed at the College of Commissioners in Brussels a few days before the July 5 referendum in 2015. “In our view, the public interest is best served when citizens know the whole truth about issues that affect their future,” Diamantopoulou, who now heads the Diktyo think tank, told Kathimerini. “When knowledge is absent, speculation, fear and populism flourish and we are left to watch the support for the euro wane day by day, while that for the drachma rises.”

Thousands of people who fled the meltdown at the Fukushima Daiichi nuclear power plant six years ago will soon lose their housing subsidies, forcing some to consider returning despite lingering concerns over radiation in their former neighbourhoods. The measure, condemned by campaigners as a violation of the evacuees’ right to live in a safe environment, will affect an estimated 27,000 people who were not living inside the mandatory evacuation zone imposed after Fukushima became the scene of the worst nuclear accident in Japanese history. The meltdown in three reactors occurred after a magnitude-9 earthquake on 11 March 2011 triggered a powerful tsunami that killed almost 19,000 people along Japan’s north-east coast and knocked out the plant’s backup cooling system.

As a “voluntary” evacuee, Noriko Matsumoto is among those who will have their subsidies withdrawn at the end of this month, forcing them to make a near-impossible choice: move back to homes they believe are unsafe, or face financial hardship as they struggle on living in nuclear limbo. “Many of the other evacuees I know are in the same position,” Matsumoto said at the launch of Unequal Impact, a Greenpeace Japan report on human rights abuses affecting women and children among the 160,000 people who initially fled from areas near the plant. As of last month, almost 80,000 were still displaced. Matsumoto said: “They would still have to contend with high radiation if they returned, but the government is forcing them to go back by withdrawing housing assistance – that’s tantamount to a crime.”

At the time of the incident, Matsumoto was living with her husband and their two daughters in the city of Koriyama, 43 miles (70km) west of the stricken facility, well outside the area where tens of thousands of people were ordered to leave. Matsumoto initially stayed put, but three months later, with her youngest daughter, then aged 12, having nosebleeds, stomach ache and diarrhoea, she left her husband behind and took their children to Kanagawa prefecture, more than 150 miles south of Fukushima. She said: “The government is playing down the effects of radiation exposure … Yet people who don’t return to places like Koriyama after this month will be left to fend for themselves. They will become internally displaced people. We feel like we’ve been abandoned by our government.”

Police raided squats in central Athens early on Monday, reclaiming properties and detaining dozens of undocumented migrants. In the first raid, officers entered a building on Alkiviadou Street which has been occupied since February. They transferred 120 migrants from the premises to the Aliens Bureau on Petrou Ralli Street. Police subsequently raided a building in Zografou which has been occupied by members of anti-establishment groups since 2012. Noone was in the building at the time of the raid but they started returning while police were on the premises and seven people were taken to the Athens police headquarters. Riot police units were stationed outside the squat buildings to prevent their reoccupation.

Women and children from Central America began arriving at the U.S.-Mexico border in unprecedented numbers during the summer of 2014. Referring to the “urgent humanitarian situation,” President Barack Obama called on Congress to build new detention centers, hire new immigration judges, and increase border surveillance as tens of thousands of unaccompanied children were detained by U.S. immigration officials. At the same time, the United States backed a Mexican government initiative to increase patrols, detentions, and deportations along Mexico’s southern border. The idea was to stop Central Americans from getting into Mexico, let alone the United States. But the gang violence, kidnappings, and extortion sending families fleeing from the “Northern Triangle” comprising El Salvador, Honduras, and Guatemala hasn’t stopped.

People illegally cross the Suchiate River on the Mexico-Guatemala border – Alice Proujansky

The area has the highest murder rate in the world outside a war zone, and people are still coming to Mexico. Only now, as photographer Alice Proujansky documents, they are taking new routes and facing new dangers. “Entire families arrive with little more than backpacks,” Proujansky said. “Women and children are particularly vulnerable: increased enforcement on freight trains has driven migrants to ride buses and walk on isolated routes where they face robbery, assault, and sexual violence.”

Proujansky spent time with families who were hoping to receive asylum from Mexico. There are no reliable figures on how many people cross the border with Guatemala each year, which is still porous despite increased patrols. But between 2014 and the summer of 2016, Mexico detained 425,000 migrants, according to an analysis of government statistics by the Washington Office on Latin America, or WOLA, a human rights advocacy group. In that same time, only 2,900 people received asylum. Last year, there were some 8,700 applicants, of whom 2,800 have so far received protection. (In 2014, Mexico’s refugee agency had just 15 people to screen thousands of applications.)

Property prices have climbed to dangerous levels in several advanced economies, raising the risk of massive price falls if markets overheat, according to the OECD. Catherine Mann, the OECD’s chief economist, said the think-tank was monitoring “vulnerabilities in asset markets” closely amid predictions of higher inflation and the prospect of diverging monetary policies next year. Ms Mann said a “number of countries”, including Canada and Sweden, had “very high” commercial and residential property prices that were “not consistent with a stable real estate market”. She also said property price falls in Britain following the vote to leave the EU could “be good for the UK” if the adjustment is borne mainly by foreign investors.“We’ve already started to see some changes in real estate prices in the UK, [particularly in] the London market,” said Ms Mann.

“[What’s] interesting in terms of the implications for the UK economy is who bears the burden – who bears the adjustment cost. If it’s a non-resident then lower house prices could actually be good for the UK.” The warning comes as research by Countrywide reveals that the number of homes sold in the UK for more than the asking price has tumbled in the last year. In January 2016, 41.5pc of homes for sale in London were sold above the asking price. But this fell to just 23pc in November. Nationally, the fall was less steep: from 29.8pc in March to 23.1pc in November. The data suggest that the UK housing market could be at an inflection point with activity slowing throughout 2016, particularly in the capital, as sellers accepted lower offers while buyers deserted the market amid uncertainty over Brexit.

While prices did not fall across the country last year, there was a slowdown in activity as people chose not to buy a home. Johnny Morris, head of research at Countrywide, said: “There isn’t the same level of competition in the market now.” The Royal Institution of Surveyors reported that the number of new buyer inquiries has been at very low levels in the second half of the year. The number of new properties on the market has also been at record lows, helping to prop up prices. Mr Morris added: “We expect prices to fall next year as this slowdown works through the system. Generally the first thing to change will be the number of transactions, and then after the gap between what people will pay and how much people will accept opens up quickly and takes a while to close. Sales slow, and then there is a price adjustment.”

“It wouldn’t be a bad opening for a Tom Clancy novel about the Cold War” – that’s how the Los Angeles Times described the sequence of events leading up to the expulsion of 35 Russian diplomats (“spies”) and the latest face-off between Washington and Moscow. Indeed the whole episode of has about it a fictional aura, which is, after all, only appropriate, since the entire basis of this latest cold war drama is pure invention. The Russian “spy nest” had supposedly been in use since 1972 – but our Keystone Kops were just now getting around to dismantling it. Oh well, better late than never! It’s a 45-acre compound on the Maryland shore, about 60 miles from Washington, a place where Russian diplomats went to relax with their families.

Neighbors said they never saw anything the least bit off, and that the Labor Day picnics to which they were invited featured plenty of really good vodka. The head of the town council, a retired Marine, told the Los Angeles Times: “They’re good neighbors, and have been the whole time they’ve been there.” On New York’s Long Island a similar scenario unfolded: an estate long the site of Russian diplomats relaxing with their families is raided by the feds, and impounded, while baffled locals look on. It’s all part of the security theater performed by Obama’s dead-enders, as they do their best to cast a long shadow over the incoming Trump administration. And like any performance, it comes with a little booklet explaining the provenance of the piece, in this case a “report” reiterating in a most unconvincing manner the assertions we’ve been hearing since Election Day: that Trump’s victory was the culmination of an elaborate Russian conspiracy, a remake of “The Manchurian Candidate,” only this time with computers.

And just to add a little extra frisson to the mix, as the clock ticked toward 2017 the Washington Post ran a story alleging that those omnipotent Russkies had hacked into Vermont’s electricity grid – and were about to turn out the lights! Except they didn’t, they weren’t, and it was all a bit of that “fake news” WaPo has been warning us about. The “Russian malware” was found on a laptop that wasn’t even connected to the internet. And it wasn’t Russian malware, it was Ukrainian. Oh, the drama! Except there wasn’t any – at least, not enough for a Tom Clancy novel. [..] Is Trump about to blow this whole phony “Put did it” scam wide open? It wouldn’t surprise me in the least. What we are seeing playing out is the reaction of the swamp creatures as Trump proceeds to drain their natural habitat. That screeching roaring sound you hear is their collective outrage as the implications of Trump’s triumph become apparent.

WikiLeaks founder Julian Assange says there’s an “obvious” reason the Obama administration has focused on Russia’s alleged role in Democratic hacks leading up to Donald Trump’s electoral win. “They’re trying to delegitimize the Trump administration as it goes into the White House,” Assange said during an interview with Fox News’s Sean Hannity airing Tuesday night, according to a transcript of excerpts from the network. “They are trying to say that President-elect Trump is not a legitimate president,” Assange said during the interview, which was conducted at the Ecuadorian embassy in London where he has been staying. “Our publications had wide uptake by the American people, they’re all true,” Assange continued. “But that’s not the allegation that’s being presented by the Obama White House.”

Assange reiterated the group’s denial that Russia was the source of the Democratic documents released over the summer. “Our source is not a state party, so the answer for our interactions is no,” he said. In December, Assange told Hannity that the documents the anti-secrecy group received looked “very much like they’re from the Russians” but said his source was not them. When asked if he thought WikiLeaks influenced the 2016 election, Assange pointed to private comments from members of the Democratic National Committee (DNC) and Hillary Clinton’s campaign in documents published by the group. “Did [WikiLeaks] change the outcome of the election? Who knows, it’s impossible to tell,” Assange said. “But if it did, the accusation is that the true statements of Hillary Clinton and her campaign manager, John Podesta, and the DNC head Debbie Wasserman Schultz, their true statements is what changed the election.”

Donald Trump has said no North Korean nuclear bomb will reach the US mainland, a day after the regime in Pyongyang claimed it was close to test-launching an intercontinental ballistic missile (ICBM). The president-elect – who has yet to articulate his incoming administration’s approach to North Korea’s nuclear weapons programme – also took another swipe at China, accusing Beijing of failing to rein in the North’s nuclear ambitions. “North Korea just stated that it is in the final stages of developing a nuclear weapon capable of reaching parts of the US. It won’t happen!” Trump tweeted. It was not clear what Trump meant: whether he believed North Korea was incapable of developing a reliable ICBM, or that the US would prevent it doing so.

He went on to reignite his verbal tit-for-tat with Beijing, this time linking trade to what he called China’s unwillingness to exert pressure on Pyongyang over its nuclear weapons programme. “China has been taking out massive amounts of money and wealth from the US in totally one-sided trade, but won’t help with North Korea. Nice!” [..] Since winning the US presidential election, Trump has not indicated he will abandon the Obama administration’s policy of isolating North Korea. He has described Kim as a “maniac”, but suggested in June 2015 that he would be willing to invite Kim to Washington for talks over hamburgers. North Korea is thought to be some way off developing a nuclear warhead capable of reaching the US, but some experts said Kim’s ICBM claims should be taken seriously, citing the progress that has been made since he became leader in late 2011.

China posted positive manufacturing numbers this week, but there are more problems that need to be fixed in the system that is acknowledged, an economist said Tuesday. “(You cannot just) focus on overcapacity and not focus on the government policy of subsidizing production or the financial system, that is, basically rolling over non-performing loans to make it look like they are still performing,” said independent economist Andy Xie. “China has been stretching the cycle and trying to roll over all the loans so nobody goes bankrupt,” he told CNBC’s Squawk Box.

The Chinese government, he said, needs to stop boosting industry by subsidizing investment as this will further contribute to over-capacity—which is in turn funded by households invested in the property bubble. “This is destroying household sector demand and you get into a vicious cycle. The industry sector can never become healthy,” he said. Xie’s comments come on the back of the release of China Caixin’s December manufacturing Purchasing Managers’ Index (PMI) which marked its fastest rate of improvement in three years.

China’s latest great wall against capital outflows is likely to be as effective at stemming overseas real estate purchases as the real thing was at keeping out invaders.The country’s foreign-exchange regulator is requiring citizens who want to move money abroad to provide extra information on bank forms introduced Jan. 1, including a pledge that the funds won’t be used to purchase property.Beijing has made several attempts in recent months to rein in the nation’s voracious appetite for overseas bricks and mortar. In November, the government imposed a ban on foreign property purchases worth $1 billion or more by state-owned enterprises. Now, even the $50,000 that every individual is allowed to convert each calendar year can henceforth be used only for non-investment purposes such as travel or medical services.

[..] Unofficial conduits for moving money out of China abound. The continued demand for dollar-denominated insurance policies in Hong Kong — even after the use of China UnionPay Co. credit and debit cards was outlawed for such purchases — is evidence enough of that.One popular tactic is known as “smurfing” – breaking sums down into small increments that avoid official scrutiny, named after the little blue cartoon characters who as small individuals constitute a larger whole. People needing to move large amounts out of China can recruit friends and relatives to help carry the load in this way.Offshore trading companies – with the cover of export and import invoicing — have more leeway to move money in and out of the country, offering another route that can be used to finance overseas property purchases.

China has acknowledged a problem with fake invoicing. Still, a more stringent clampdown would risk disrupting trade at a time of weak growth.This is the rub for China’s foreign-exchange regulators. Capital controls are inevitably porous, especially for a country that’s as plugged into the global trade and economic system as China. And the demand for offshore property remains seemingly insatiable.Rich Chinese aim to have at least a third of their wealth outside the country and real estate is their most popular overseas investment, according to the Hurun Research Institute. About 60 percent of individuals surveyed said they plan to buy offshore property in the next three years, the wealth researcher said in an October report.

The reasons for the exodus are well known. China’s economy is slowing, domestic real estate is becoming increasingly unaffordable and the yuan is depreciating. In these circumstances, foreign property promises capital preservation. Until these fundamental factors turn around, Chinese authorities will be pushing against the tide.The greatest value of the latest controls may be in the signal they send to the general population: China is serious about reining in outflows, and those who are caught abusing the system will be dealt with severely. That may give some buyers pause. But the history of such endeavors shows that people care much more about preserving their wealth than observing the letter of the law. This is another clampdown that will fail.

China started a freight train to London as part of President Xi Jinping’s efforts to strengthen trade ties with Europe, Xinhua reported, citing state-owned China Railway Corp. The train, departing from Yiwu in eastern Zhejiang province, will cover more than 12,000 kilometers (7,500 miles) in about 18 days before reaching the British city, carrying goods such as garments, bags and suitcases among other items, Xinhua said Monday. The freighter will pass through Kazakhstan, Russia, Belarus, Poland, Germany, Belgium and France.

London is the 15th city in Europe to be added to China’s freight train services to the continent as Xi seeks to reinforce commercial links with markets across Asia, Africa, the Middle East and Europe. In 2013, Xi unveiled his so-called Belt-and-Road initiative, making transport lines the centerpiece of his efforts to create a modern Silk Road. China has initially set aside about $40 billion in a fund to finance roads and railways abroad under the plan, while the nation’s trade with countries along the routes could reach $2.5 trillion in about a decade, Yao Gang, the then vice chairman of China Securities Regulatory Commission, said in 2015.

Finland has become the first country in Europe to pay its unemployed citizens a basic monthly income, amounting to €560 (£477/US$587), in a unique social experiment that is hoped to cut government red tape, reduce poverty and boost employment. Olli Kangas from the Finnish government agency KELA, which is responsible for the country’s social benefits, said on Monday that the two-year trial with 2,000 randomly picked citizens receiving unemployment benefits began on 1 January. Those chosen will receive €560 every month, with no reporting requirements on how they spend it. The amount will be deducted from any benefits they already receive. The average private sector income in Finland is €3,500 per month, according to official data.

Kangas said the scheme’s idea was to abolish the “disincentive problem” among the unemployed. The trial aimed to discouraged people’s fears “of losing out something”, he said, adding that the selected persons would continue to receive the €560 even after receiving a job. A jobless person may currently refuse a low-income or short-term job in the fear of having his financial benefits reduced drastically under Finland’s generous and complex social security system. “It’s highly interesting to see how it makes people behave,” Kangas said. “Will this lead them to boldly experiment with different kinds of jobs? Or, as some critics claim, make them lazier with the knowledge of getting a basic income without doing anything?”

The unemployment rate of Finland, a nation of 5.5 million, stood at 8.1% in November with some 213,000 people without a job – unchanged from the previous year. The scheme is part of the measures by the centre-right government of Finland’s prime minister, Juha Sipila, to tackle unemployment. Kangas said the basic income experiment may be expanded later to other low-income groups such as freelancers, small-scale entrepreneurs and part-time workers.

Africa has seen the most dramatic growth in the deployment of America’s elite troops of any region of the globe over the past decade, according to newly released numbers. In 2006, just 1% of commandos sent overseas were deployed in the U.S. Africa Command area of operations. In 2016, 17.26% of all U.S. Special Operations forces – Navy SEALs and Green Berets among them – deployed abroad were sent to Africa, according to data supplied to The Intercept by U.S. Special Operations Command. That total ranks second only to the Greater Middle East where the U.S. is waging war against enemies in Afghanistan, Iraq, Syria, and Yemen. “In Africa, we are not the kinetic solution,” Brigadier General Donald Bolduc, the chief of U.S. Special Operations Command Africa, told African Defense, a U.S. trade publication, early this fall. “We are not at war in Africa – but our African partners certainly are.”

That statement stands in stark contrast to this year’s missions in Somalia where, for example, U.S. Special Operations forces assisted local commandos in killing several members of the militant group, al-Shabab and Libya, where they supported local fighters battling members of the Islamic State. These missions also speak to the exponential growth of special operations on the continent. As recently as 2014, there were reportedly only about 700 U.S. commandos deployed in Africa on any given day. Today, according to Bolduc, “there are approximately 1,700 [Special Operations forces] and enablers deployed… at any given time. This team is active in 20 nations in support of seven major named operations.” Using data provided by Special Operations Command and open source information, The Intercept found that U.S. special operators were actually deployed in at least 33 African nations, more than 60% of the 54 countries on the continent, in 2016.

This is the EU. This is what it stands for. There are no fiancial reasons for this to happen. It’s pure malice. And it’s why it’s way past time to close up shop in Brussels. The EU is the mob. Or as I’ve been saying for a long time: the EU eats people alive.

Rising mortality rates, an increase in life-threatening infections and a shortage of staff and medical equipment are crippling Greece’s health system as the country’s dogged pursuit of austerity hammers the weakest in society. Data and anecdote, backed up by doctors and trade unions, suggest the EU’s most chaotic state is in the midst of a public health meltdown. “In the name of tough fiscal targets, people who might otherwise survive are dying,” said Michalis Giannakos who heads the Panhellenic Federation of Public Hospital Employees. “Our hospitals have become danger zones.” Figures released by the European Centre for Disease Prevention and Control recently revealed that about 10% of patients in Greece were at risk of developing potentially fatal hospital infections, with an estimated 3,000 deaths attributed to them.

The occurrence rate was dramatically higher in intensive care units and neonatal wards, the body said. Although the data referred to outbreaks between 2011 and 2012 – the last official figures available – Giannakos said the problem had only got worse. Like other medics who have worked in the Greek national health system since its establishment in 1983, the union chief blamed lack of personnel, inadequate sanitation and absence of cleaning products for the problems. Cutbacks had been exacerbated by overuse of antibiotics, he said. “For every 40 patients there is just one nurse,” he said, mentioning the case of an otherwise healthy woman who died last month after a routine leg operation in a public hospital on Zakynthos. “Cuts are such that even in intensive care units we have lost 150 beds.” “Frequently, patients are placed on beds that have not been disinfected.

Staff are so overworked they don’t have time to wash their hands and often there is no antiseptic soap anyway.” No other sector has been affected to the same extent by Greece’s economic crisis. Bloated, profligate and corrupt, for many healthcare was indicative of all that was wrong with the country and, as such, badly in need of reform. Acknowledging the shortfalls, the government announced last month that it planned to appoint more than 8,000 doctors and nurses in 2017. Since 2009, per capita spending on public health has been cut by nearly a third – more than €5bn – according to the OECD. By 2014, public expenditure had fallen to 4.7% of GDP, from a pre-crisis high of 9.9%. More than 25,000 staff have been laid off, with supplies so scarce that hospitals often run out of medicines, gloves, gauze and sheets.

The president of the European commission, Jean-Claude Juncker, spent years in his previous role as Luxembourg’s prime minister secretly blocking EU efforts to tackle tax avoidance by multinational corporations, leaked documents reveal. Years’ worth of confidential German diplomatic cables provide a candid account of Luxembourg’s obstructive manoeuvres inside one of Brussels’ most secretive committees. The code of conduct group on business taxation was set up almost 19 years ago to prevent member states from being played off against one another by increasingly powerful multinational businesses, eager to shift profits across borders and avoid tax. Little has been known until now about the workings of the committee, which has been meeting since 1998, after member states agreed a code of conduct on tax policies and pledged not to engage in “harmful competition” with one another.

However, the leaked cables reveal how a small handful of countries have used their seats on the committee to frustrate concerted EU action and protect their own tax regimes. Efforts by a majority of member states to curb aggressive tax planning and to rein in predatory tax policies were regularly delayed, diluted or derailed by the actions of a few of the EU’s smallest members, frequently led by Luxembourg. The leaked papers, shared with the Guardian and the International Consortium of Investigative Journalists by the German radio group NDR, are highly embarrassing for Juncker, who served as Luxembourg’s prime minister from 1995 until the end of 2013. During that period he also acted as finance and treasury minister, taking a close interest in tax policy. Despite having a population of just 560,000, Luxembourg was able to resist widely supported EU tax reforms, its dissenting voice often backed only by that of the Netherlands.

The head of Germany’s Ifo economic institute believes Italians will eventually want to quit the euro currency area if their standard of living does not improve, he told German daily Tagesspiegel. “The standard of living in Italy is at the same level as in 2000. If that does not change, the Italians will at some stage say: ‘We don’t want this euro zone any more’,” Ifo chief Clemens Fuest told the newspaper. He also said that if Germany’s parliament were to approve a European rescue program for Italy, it would impose on German taxpayers risks “the size of which it does not know and cannot control.” He said German lawmakers should not agree to do this. Italy is not seeking such a rescue program. The government in Rome is focusing on underwriting the stability of its banking sector, starting with a bailout of Monte dei Paschi di Siena.

A top aide to President-elect Donald Trump said in an interview aired on Sunday that the White House may have disproportionately punished Russia by ordering the expulsion of 35 suspected Russian spies. Incoming White House press secretary Sean Spicer said on ABC’s “This Week” that Trump will be asking questions of U.S. intelligence agencies after President Barack Obama imposed sanctions last week on two Russian intelligence agencies over what he said was their involvement in hacking political groups in the 2016 U.S. presidential election. Obama also ordered Russia to vacate two U.S. facilities as part of the tough sanctions on Russia.

“One of the questions that we have is why the magnitude of this? I mean you look at 35 people being expelled, two sites being closed down, the question is, is that response in proportion to the actions taken? Maybe it was; maybe it wasn’t but you have to think about that,” Spicer said. Trump is to have briefings with intelligence agencies this week after he returns to New York on Sunday. On Saturday, Trump expressed continued skepticism over whether Russia was responsible for computer hacks of Democratic Party officials. “I think it’s unfair if we don’t know. It could be somebody else. I also know things that other people don’t know so we cannot be sure,” Trump said.

He said he would disclose some information on the issue on Tuesday or Wednesday, without elaborating. It is unclear if, upon taking office on Jan. 20, he would seek to roll back Obama’s actions, which mark a post-Cold War low in U.S.-Russian ties. Spicer said that after China in 2015 seized records of U.S. government employees “no action publicly was taken. Nothing, nothing was taken when millions of people had their private information, including information on security clearances that was shared. Not one thing happened.” “So there is a question about whether there’s a political retribution here versus a diplomatic response,” he added.

Gov. Cuomo vetoed a bill late Saturday that would have required the state to fund legal services for the poor in each county. Cuomo’s office in a New Year’s Eve statement released just over an hour before the bill was required to be signed or vetoed said last-minute negotiations with the Legislature to address the governor’s concerns failed to yield a deal. “Until the last possible moment, we attempted to reach an agreement with the Legislature that would have achieved the stated goal of this legislation, been fiscally responsible, and had additional safeguards to ensure accountability and transparency,” Cuomo spokesman Richard Azzopardi said. “Unfortunately, an agreement was unable to be reached and the Legislature was committed to a flawed bill that placed an $800 million burden on taxpayers – $600 million of which was unnecessary – with no way to pay for it and no plan to make one.”

He said the issue will be revisited in the upcoming legislative session. The bill, which had support from progressive and conservative groups, would have given the state seven years to take over complete funding of indigent legal services from towns. Dozens of groups representing public defenders, municipalities and others expressed disappointment. Jonathan Gradess, executive director of the New York State Defenders Association, called Cuomo’s decision to veto the bill “stunning.” “We are all shocked that the Governor vetoed a bill that would have reduced racial disparities in the criminal justice system, helped ensure equal access to justice for all New Yorkers, provided improved public defense programs for those who cannot afford an attorney, and much-needed mandate relief for counties, Gradess said. “The governor refused to accept an independent oversight mechanism on state quality standards, and now, sadly tens of thousands of low-income defendants will pay the price.”

Retailers are bracing for a fresh wave of store closures at the start of the new year. The industry is heading into 2017 with a glut of store space as shopping continues to shift online and foot traffic to malls declines, according to analysts. “If you are weaker player, it’s going to be a very tough 2017 for you, ” said RJ Hottovy, a consumer equity strategist for Morningstar. He said he’s expecting a number of retailers to file for bankruptcy next year, in addition to mass store closures. Nearly every major department store, including Macy’s, Kohl’s, Walmart, and Sears, have collectively closed hundreds of stores over the last couple years to try and stem losses from unprofitable stores and the rise of ecommerce. But the closures are far from over.

Macy’s has already said that it’s planning to close 100 stores, or about 15% of its fleet, in 2017. Sears is shuttering at least 30 Sears and Kmart stores by April, and additional closures are expected to be announced soon. CVS also said this month that it’s planning to shut down 70 locations. Mall stores like Aeropostale, which filed for bankruptcy in May, American Eagle, Chicos, Finish Line, Men’s Wearhouse, and The Children’s Place are also in the midst of multi-year plans to close stores. Many more announcements like these are expected in the coming months. The start of the year is a popular time to announce store closures. Nearly half of annual store closings announced since 2010 have occurred in the first quarter, CNBC reports.

In addition to closing stores, retailers are also looking to shrink their existing locations. “As leases come up, you’re going to see a gradual rotation into smaller-footprint stores,” Hottovy said. Despite recent closures, the US is still oversaturated with stores. The US has 23.5 square feet of retail space per person, compared with 16.4 square feet in Canada and 11.1 square feet in Australia — the next two countries with the highest retail space per capita, according to a Morningstar report from October. “Across retail overall the US has too much space and too many shops,” said Neil Saunders, CEO of the retail consulting firm Conlumino. “As shopping patterns have changed, some of those shops are also in the wrong place and are of the wrong size or configuration.”

China’s new regulations on cash transactions and overseas transfers are not capital controls, according to a central bank researcher cited by the official Xinhua News Agency. New requirements published by the People’s Bank of China Friday stoked concern that the government is imposing capital controls in a disguised form, Xinhua reported late Sunday. “It is not capital control at all,” Ma Jun, chief economist of the central bank’s research bureau, told the state-run news service. The $50,000 annual foreign exchange purchase quota for individuals is unchanged, and the rules won’t affect normal activities such as business investment and operations abroad or overseas travel and study, Ma said.

Ma’s comments follow the annual Jan. 1 reset of the $50,000 limit for individuals, which may potentially aggravate capital outflow pressures that have been intensifying after the yuan suffered its steepest annual slump in more than two decades. The PBOC said Friday it will tighten rules for banks to report cross-border customer transactions starting July 1 as part of stepped-up efforts to curb money laundering and prevent terrorism financing. Financial institutions will assume responsibility for reporting and there will be neither extra documentation nor official approval procedures for businesses and individuals, Ma said.

The Chinese government should set a more flexible target for economic growth this year to give more space for reform efforts, a central bank adviser told the official Xinhua news agency in comments published on Sunday. China’s economy grew 6.7% in the third quarter from a year earlier and looks set to achieve the government’s full-year forecast of 6.5-7%, buoyed by higher government spending, a housing boom and record bank lending. However, growing debt and concerns about property bubbles have touched off an internal debate about whether China should tolerate slower growth in 2017 to allow more room for painful reforms aimed at reducing industrial overcapacity and indebtedness.

Huang Yiping, a monetary policy committee member of the central People’s Bank of China and Peking University professor, told Xinhua that China’s GDP growth target range should be 6-7% for this year, compared with 6.5-7% in 2016. “The 6.5% target is just an average rate,” Huang said. “As long as employment is stable, a slightly wider growth target range in the short term will reduce the need for pro-growth efforts and give policy makers more room to focus on reforms.” This year’s growth target will determine the government’s monetary policy, Huang said. “Large-scale monetary loosening is unlikely, while the possibility of tightening can not be ruled out,” he added, citing inflation concerns, higher U.S. interest rates and a weakening yuan.

Home prices defied forecasts they would stagnate in 2016 to grow more than they did during the “boom” year of 2015, according to year-end figures from property research firm CoreLogic. Dwelling prices rose 15.46% in Sydney while Melbourne had a rise of 13.68%. Even the much-maligned Hobart and Canberra housing markets posted strong gains, rising 11.24% and 9.29% respectively.

The data disappointed economists hoping for a more subdued housing market in 2016. At the end of 2015, Sydney and Melbourne closed with 11.5% and 11.2% growth respectively across houses and units, according to CoreLogic. ANZ had been expecting soft price growth and had forecast a 3% price rise for NSW, a 3.2% increase for Victoria, a 2% gain in Queensland and an overall 2.8% rise the country as a whole.

Apart from all the ill-feeling about the election, one constant ‘out there’ since November 8 is the Ayn Randian rapture that infects the money scene. Wall Street and big business believe that the country has passed through a magic portal into a new age of heroic businessmen-warriors (Trump, Rex T, Mnuchin, Wilbur Ross, et. al.) who will go forth creating untold wealth from super-savvy deal-making that un-does all the self-defeating malarkey of the detested Deep State technocratic regulation regime of recent years. The main signs in the sky, they say, are the virile near-penetration of the Dow Jones 20,000-point maidenhead and the rocket ride of Ole King Dollar to supremacy of the global currency-space. I hate to pound sleet on this manic parade, but, to put it gently, mob psychology is outrunning both experience and reality. Let’s offer a few hypotheses regarding this supposed coming Trumptopian nirvana.

The current narrative weaves an expectation that manufacturing industry will return to the USA complete with all the 1962-vintage societal benefits of great-paying blue collar jobs, plus an orgy of infrastructure-building. I think both ideas are flawed, even allowing for good intentions. For one thing, most of the factories are either standing in ruin or scraped off the landscape. So, it’s not like we’re going to reactivate some mothballed sleeping giant of productive capacity. New state-of-the-art factories would require an Everest of private capital investment that is simply impossible to manifest in a system that is already leveraged up to its eyeballs. Even if we tried to accomplish it via some kind of main force government central planning and financing — going full-Soviet — there is no conceivable way to raise (borrow) the “money” without altogether destroying the value of our money (inflation), and the banking system with it.

If by some magic any new industrial capacity were built, much of the work in it would be performed by robotics, not brawny men in blue shirts, and certainly not at the equivalent of the old United Auto Workers $35-an-hour assembly line wage. We have not faced the fact that the manufacturing fiesta based on fossil fuels was a one-time thing due to special historical circumstances and will not be repeated. The future of manufacturing in America is frighteningly modest. We’ll actually be lucky if we can make a few vital necessities by means of hydro-electric or direct water power, and that will be about the extent of it. Some of you may recognize this as the World Made By Hand scenario. I’ll stick by that.

Not a new topic for many, but if it is for the New Yorker, there may be more people not aware of the Mosul Dam’s inherent problems: “a multilayer foundation of anhydrite, marl, and limestone, all interspersed with gypsum—which dissolves in contact with water. Dams built on this kind of rock are subject to a phenomenon called karstification..” Oh well, may be a good read up for all.

On the morning of August 7, 2014, a team of fighters from the Islamic State, riding in pickup trucks and purloined American Humvees, swept out of the Iraqi village of Wana and headed for the Mosul Dam. Two months earlier, isis had captured Mosul, a city of nearly two million people, as part of a ruthless campaign to build a new caliphate in the Middle East. For an occupying force, the dam, twenty-five miles north of Mosul, was an appealing target: it regulates the flow of water to the city, and to millions of Iraqis who live along the Tigris. As the isis invaders approached, they could make out the dam’s four towers, standing over a wide, squat structure that looks like a brutalist mausoleum. Getting closer, they saw a retaining wall that spans the Tigris, rising three hundred and seventy feet from the riverbed and extending nearly two miles from embankment to embankment. Behind it, a reservoir eight miles long holds eleven billion cubic metres of water.

A group of Kurdish soldiers was stationed at the dam, and the isis fighters bombarded them from a distance and then moved in. When the battle was over, the area was nearly empty; most of the Iraqis who worked at the dam, a crew of nearly fifteen hundred, had fled. The fighters began to loot and destroy equipment. An isis propaganda video posted online shows a fighter carrying a flag across, and a man’s voice says, “The banner of unification flutters above the dam.” The next day, Vice-President Joe Biden telephoned Masoud Barzani, the President of the Kurdish region, and urged him to retake the dam as quickly as possible. American officials feared that isis might try to blow it up, engulfing Mosul and a string of cities all the way to Baghdad in a colossal wave. Ten days later, after an intense struggle, Kurdish forces pushed out the isis fighters and took control of the dam.

But, in the months that followed, American officials inspected the dam and became concerned that it was on the brink of collapse. The problem wasn’t structural: the dam had been built to survive an aerial bombardment. (In fact, during the Gulf War, American jets bombed its generator, but the dam remained intact.) The problem, according to Azzam Alwash, an Iraqi-American civil engineer who has served as an adviser on the dam, is that “it’s just in the wrong place.” Completed in 1984, the dam sits on a foundation of soluble rock. To keep it stable, hundreds of employees have to work around the clock, pumping a cement mixture into the earth below. Without continuous maintenance, the rock beneath would wash away, causing the dam to sink and then break apart. But Iraq’s recent history has not been conducive to that kind of vigilance.

Three film production companies including Netflix are interested in making a warts-and-all screen dramatization of Nigel Farage’s insurgent Brexit campaign, according to an associate of Farage. This would be another extraordinary twist for Farage, who from the fringes of British politics achieved his life’s goal when Britons voted to leave the European Union last June, and has since befriended U.S. President-elect Donald Trump. The project would be based on “The Bad Boys of Brexit”, an account of Farage’s campaign by Arron Banks, a multi-millionaire British insurance tycoon who bankrolled the campaign, according to Andy Wigmore, a spokesman for Banks.

“We have three interested parties in the rights to the book and we will be meeting representatives from three studios including a Netflix representative on Jan. 19 in Washington DC,” Wigmore told Reuters in a text message. Farage, Banks, Wigmore and others in their circle will travel to Washington for Trump’s inauguration as president, which will take place on Jan. 20. “We have invited all of them (the studio representatives) to our pre-inaugural drinks party … We have also invited many of Trump’s team to the event,” said Wigmore.

The Sunday Telegraph newspaper earlier reported that Hollywood studio Warner Bros. was also interested, but it was unclear from Wigmore’s texts to Reuters whether those who have approached Banks included representatives of Warner Bros. The subtitle of Banks’ book is “Tales of Mischief, Mayhem and Guerrilla Warfare in the EU Referendum Campaign”. It is described on its publisher’s website as “an honest, uncensored and highly entertaining diary of the campaign that changed the course of history”. Asked whether Farage was likely to appear as himself in any screen adaptation of his campaign, Wigmore said: “Yes we all expect to make a Quentin Tarantino appearance”, a reference to the director’s cameo appearances in his own movies.

Claude Monet Woman with a Parasol – Madame Monet and Her Son Dec 31 1874

The end of the year is always a time when there are currency and liquidity issues in China. This has to do with things like taxes being paid, and bonuses for workers etc. So it’s not a great surprise that the same happens in 2016 too. Then again, the overnight repo rate of 33% on Tuesday was not exactly normal. That indicates something like a black ice interbank market, things that can get costly fast.

I found it amusing to see Bloomberg report that: “As banks become more reluctant to offer cash to other types of institutions, the latter have to turn to the exchange for money, said Xu Hanfei at Guotai Junan Securities in Shanghai. Amusing, because I bet many will instead have turned to the shadow banking system for relief. So much of China’s financial wherewithal is linked to ‘the shadows’ these days, it would make sense for Beijing to bring more of it out into the light of day. Don’t hold your breath.

Tyler on last night’s situation: ..the government crackdown on the credit and housing bubble may be serious for once due to fears about “rising social tensions”, much of the overnight repo rate spike was driven by the PBOC which pulled a net 150 billion yuan of funds in open-market operations..”. And the graph that comes with it:

It all sounds reasonable and explicable, though I’m not sure ‘core leader’ Xi would really want to come down hard on housing -he certainly hasn’t so far-, but there are things that do warrant additional attention. The first has to be that on Sunday January 1 2017, a ‘new round’ of $50,000 per capita permissions to convert yuan into foreign currencies comes into effect. And a lot of Chinese people are set to want to make use of that, fast.

Because there is a lot of talk and a lot of rumors about an impending devaluation. That’s not so strange given the continuing news about increasing outflows and shrinking foreign reserves. And those $50,000 is just the permitted amount. Beyond that, things like real estate purchases abroad, and ‘insurance policies’ bought in Hong Kong, add a lot to the total.

What makes this interesting is that if only 1% of the Chinese population -close to 1.4 billion people- would want to make use of these conversion quota, and most of them would clamor for US dollars, certainly since its post-election rise, if just 1% did that, 14 million times $50,000, or $700 billion, would potentially be converted from yuan to USD. That’s almost 20% of the foreign reserves China has left ($3.12 trillion in October, from $4 trillion in June 2014).

In other words, a blood letting. And of course this is painting with a broad stroke, and it’s hypothetical, but it’s not completely nuts either: it’s just 1% of the people. Make it 2%, and why not, and you’re talking close to 40% of foreign reserves. This means that the devaluation rumors should not be taken too lightly. If things go only a little against Beijing, devaluation may become inevitable soon.

In that regard, a remarkable change seems to be that while China’s always been intent on keeping foreign investment out, now all of a sudden they announce they’re going to sharply reduce restrictions on foreign investment access in 2017. While at the same time restricting mergers and acquisitions by Chinese corporations abroad, in an attempt to keep -more- money from flowing out. Something that has been as unsuccessful as so many other pledges.

The yuan has declined 6.6% in value in 2016 (and 15% since mid-2014), and that’s probably as bad as it gets before some people start calling it an outright devaluation. More downward pressure is certain, through the conversion quota mentioned before. After that, first there’s Trump’s January 20 inauguration, and a week after, on January 27, Chinese Lunar New Year begins.

May you live in exciting times indeed. It might be a busy week in Beijing. As AFP reported at the beginning of December:

Trump has vowed to formally declare China a “currency manipulator” on the first day of his presidency, which would oblige the US Treasury to open negotiations with Beijing on allowing the renminbi to rise.

Sounds good and reasonable too, but how exactly would China go about “allowing the renminbi to rise”? It’s the last thing the currency is inclined to do right now. It would appear it would take very strict capital controls to stop the currency from plunging, and that’s about the last thing Xi is waiting for. For one thing, the hard-fought inclusion in the IMF basket would come under pressure as well. AFP continues:

China charges an average 15.6% tariff on US agricultural imports and 9% on other goods, according to the WTO.

Chinese farm products pay 4.4% and other goods 3.6% when coming into the United States.

China is the United States’ largest trading partner, but America ran a $366 billion deficit with Beijing in goods and services in 2015, up 6.6% on the year before.

I don’t know about you, but I think I can see where Trump is coming from. Opinions may differ, but those tariff differences look as if they belong to another era, as in the era they came from, years ago. Lots of water through the Three Gorges since then. So the first thing the US Treasury will suggest to China on the first available and convenient occasion after January 20 for their legally obligatory talk is: let’s equalize this. What you charge us, we’ll charge you. Call it even and call it a day.

That would both make Chinese products considerably more expensive in the States, and open the Chinese economy to American competition. There are many hundreds of billions of dollars in trade involved. And of course I see all the voices claiming that it will hurt the US more than China and all that, but what would they suggest, then? You can’t leave this tariff gap in place forever, so what do you do?

I’m sure Trump and his team, Wilbur Ross et al, have been looking at this a lot, it’s a biggie, and have a schedule in their heads for phasing out the gap in multiple steps. Steps too steep and short for China, no doubt, but then, I don’t buy the argument that the US should sit still because China owns so much US debt. That’s a double-edged sword if ever there was one, and all hands on the table know it.

If you’re Xi, and you’re halfway realist, you just know that Trump will aim to cut the $366 billion 2015 deficit by at least 50% for 2017, and take it from there. That’s another big chunk of change the core leader stands to lose. And another major pressure point for the yuan, obviously. How Xi would want to avoid devaluation, I don’t know. How he would handle it once it can no longer be avoided, don’t know that either. Trump’s trump card?

One other change in China in 2016 warrants scrutiny. That is, the metamorphosis of many Chinese people from caterpillar savers into butterfly borrowers. Or gamblers, even. It’s one thing to buy units in empty apartment blocks with your savings, but it’s another to buy them with money you borrow. But then, many Chinese still have access to few other investment options. That’s why the $50,000 conversion to USD permission as per January 1 could grow real big.

But in the meantime, many have borrowed to buy real estate. And they’ve been buying into a genuine absolute bubble. It’s not always evident, because prices keep oscillating, but the last move in that wave will be down.

If I were Xi, all these things would keep me up at night. But I’m not him, and I can’t oversee to what extent his mind is still in the ‘omnipotent sphere’, if he still has the impression that in the end, come what may, he’s in total control. In my view, his problem is that he has two bad choices to choose from.

Either he will have to devalue the yuan, and sharply too (to avoid a second round), an option that risks serious problems with Trump and other leaders (IMF), and would take away much of the wealth the Chinese people thought they had built up -ergo: social unrest-.

Either that or he will be forced, if he wants to maintain some stability in the yuan’s valuation, to clamp down domestically with very grave capital controls, which carries the all too obvious risk of, once again, serious social unrest. And which would (re-)isolate the country to such an extent that the entire economic model that lifted the country out of isolation in the first place would be at risk.

This may play out relatively quickly, if for instance sufficient numbers of people (the 1% would do) try to convert their $50,000 allotment of yuan into dollars -and the government is forced to say it doesn’t have enough dollars-. But that is hard to oversee from the outside.

There are, for me, too many ‘unknown unknowns’ in this game. But I don’t see it, I don’t see how Xi and his crew will get themselves through this minefield without getting burned. I’m looking for an escape route, but there seem to be none available. Only hard choices. If you come upon a fork in the road, China, don’t take it.

And mind you, this is all without even having touched upon the massive debts incurred by thousands upon thousands of local governments, and the grip that these debts have allowed the shadow banks to get on society, without mentioning the Wealth Management Products and other vehicles in that part of the economy, another ‘industry’ worth trillions of dollars. I mean, just look at the growth rates in these instruments:

There’s simply too much debt all throughout the system, and it’s due for a behemoth restructuring. You look at some of the numbers and graphs, and you wonder: what were they thinking?

Prime Minister Shinzo Abe’s “bold” plan to revive the economy with a $273 billion package leaves him traveling down a well-trod path: it marks the 26th dose of fiscal stimulus since the country’s epic markets crash in 1990, in a warning for its effectiveness. The nation has had extra budgets every year since at least 1993, and even with that extra spending, it has still had six recessions, an entrenched period of deflation, soaring debt and a rapidly aging population that has left the world’s third-largest economy still struggling to get off the floor. While some analysts say the latest round of spending may buy the economy time, few are convinced it will be enough to dramatically change the course.

First off, much of the 28 trillion yen announced by Abe last week won’t be spending, but lending. And if previous episodes are any guide, an initial sugar hit to markets and growth will quickly fade amid a realization that extra spending does little to cure the economy’s underlying problems. A Goldman Sachs study found that markets gave up their gains in the first month after the cabinet approved the stimulus in 18 of the 25 packages it studied since 1990. Skeptics of Abe’s latest plan aren’t hard to find. Instead of adding to a debt pile already more than twice the economy’s size, more should be done to tackle thorny structural problems such as a declining labor force and protected industries, according to Naoyuki Shinohara, a former Japanese finance ministry official.

“Looking at the history of the Japanese economy, there have been lots of fiscal stimulus packages,” according to Shinohara, who was a top official at the IMF until last year. “But the end result is that it didn’t have much impact on the potential growth rate.”

Activity in China’s manufacturing sector eased unexpectedly in July as orders cooled and flooding disrupted business, an official survey showed, adding to fears the economy will slow in coming months unless the government steps up a huge spending spree. While a similar private survey showed business picked up for the first time in 17 months, the increase was only slight and the much larger official survey on Monday suggested China’s overall industrial activity remains sluggish at best. Both surveys showed persistently weak demand at home and abroad were forcing companies to continue to shed jobs, even as Beijing vows to shut more industrial overcapacity that could lead to larger layoffs.

And other readings on Monday pointed to signs of cooling in both the construction industry and real estate, which were key drivers behind better-than-expected economic growth in the second quarter. The official Purchasing Managers’ Index (PMI) eased to 49.9 in July from the previous month’s 50.0 and below the 50-point mark that separates growth from contraction on a monthly basis. While the July reading showed only a slight loss of momentum, Nomura’s chief China economist Yang Zhao said it may be a sign that the impact of stimulus measures earlier this year may already be wearing off. That has created a dilemma for Beijing as the Communist Party seeks to deliver on official targets, even as concerns grow about the risks of prolonged, debt-fueled stimulus.

“The government has realized the downward pressure is great but they’ve also realized that stimulus to stimulate the economy continuously is not a good idea and they want to continue to focus on reform and deleveraging,” Zhao said.

For David Wong, the business of selling homes isn’t as good this year as it was in 2015, and he’s blaming that on a decline in customers from China. “The residential-property market here, especially for those priced between $2.5 million to $3 million, has been affected by China’s measures to control capital flight,” said the New York City-based Keller Williams Realty Landmark broker. “You need to cut the price, or it may take a real long time.” Wong is not the only one who has felt the cooling in the U.S. real estate market for foreign buyers. Total sales to Chinese buyers in the 12 months through March fell for the first time since 2011, to $27.3 billion from $28.6 billion a year earlier, according to an annual research report released by the National Association of Realtors.

The number of properties purchased by Chinese also declined to 29,195 units from 34,327 units. While the total international sales saw its first decline in three years, the 1.25% pace is slower than 4.5% recorded for Chinese buying. In terms of U.S. dollar value, the total share of Chinese buying of international sales dropped from 27.5% to 26.7%. [..] The yuan began plummeting in August, driving the Chinese currency to a five-year low versus the U.S. dollar. The Chinese authorities have been compelled to increasingly tighten the noose on cross-border capital flows to defend the yuan and to slow down the burnout of the nation’s foreign-exchange reserves since then. This includes increasing scrutiny of transfers overseas, to closely check whether individuals send money abroad by breaking up foreign-currency purchases into smaller transactions.

In 2010, Social Security (OASDI) unofficially went bankrupt. For the first time since the enactment of the SS amendments of 1983, annual outlays for the program exceeded receipts (excluding interest credited to the trust funds). The deficit has grown every year since 2010 and is now up to 8% annually and is projected to be 31% in 2026 and 44% by ’46. The chart below highlights the OASDI annual surplus growth (blue columns) and total surplus (red line). This chart includes interest payments to the trust funds and thus looks a little better than the unvarnished reality. For a little perspective, the program pays more than 60 million beneficiaries (almost 1 in 5 Americans), OASDI (Old Age, Survivors, Disability Insurance) represents 25% of all annual federal spending, and for more than half of these beneficiaries these benefits represent their sole or primary source of income.

The good news is since SS’s inception in 1935, the program collected $2.9 trillion more than it paid out. The bad news is that the $2.9 trillion has already been spent. But by law, Social Security is allowed to pretend that the “trust fund” money is still there and continue paying out full benefits until that fictitious $2.9 trillion is burned through. To do this, the Treasury will issue another $2.9 trillion over the next 13 years to be sold as marketable debt so it may again be spent (just moving the liability from one side of the ledger, the Intergovernmental, to the other, public marketable). However, according to the CBO, Social Security will have burnt through the pretend trust fund money (that wasn’t there to begin with) by 2029.

Below, the annual OASDI surplus (in red) peaking in 2007, matched against the annual growth of the 25-64yr/old (in blue) and 65+yr/old (grey) populations. The impact of the collapse of the growth among the working age population and swelling elderly population is plain to see. And it will get far worse before it eventually gets better. [..] Americans turning 67 in 2030 will be told that after being mandated to pay their full share of SS taxation throughout their working lifetime, they will not see anything near their full benefits in their latter years. However, those in retirement now and those retiring between now and 2029 are being paid in full despite the shortfall in revenue. They will be paid in full until this arbitrary “trust fund” is theoretically drained.

I have no intention of funding, in full, current retirees benefits with my tax dollars only to know I will hit the finish line with a 30%+ reduction that will only worsen over time. My goal is to pay it forward to my kids and then do my best to never to be a burden to them. The SS (OASDI) benefits must be cut now to be in line with revenues. Raise taxes, lower benefits…your choice. But I’m not about to make the old whole so I can then subsequently see my generation go bankrupt in my latter years.

Dealing with the effects of poverty costs the public purse £78bn a year, or £1,200 for every person in the UK, according to the first wide-ranging report into the impact of deprivation on Britain’s finances. The Joseph Rowntree Foundation (JRF) estimates that the impact and cost of poverty accounts for £1 in every £5 spent on public services. The biggest chunk of the £78bn figure comes from treating health conditions associated with poverty, which amounts to £29bn, while the costs for schools and police are also significant. A further £9bn is linked to the cost of benefits and lost tax revenues. The research, carried out for JRF by Heriot-Watt and Loughborough universities, is designed to highlight the economic case, on top of the social arguments, for tackling poverty in the UK.

The prime minister, Theresa May, has made cutting inequality a central pledge. Julia Unwin, the chief executive of the foundation, said: “It is unacceptable that in the 21st century, so many people in our country are being held back by poverty. But poverty doesn’t just hold individuals back, it holds back our economy too. “Taking real action to tackle the causes of poverty would bring down the huge £78bn yearly cost of dealing with its effects, and mean more money to create better public services and support the economy. UK poverty is a problem that can be solved if government, businesses, employers and individuals work together.”

Put simply, the EU is a half-way house with too much democracy and nothing in the way of transfer union. “There are too many moving parts in the electoral politics of 28 nation states, and too many conceivable random-like events that could push political and economic developments in one direction or another, with impossible-to-predict consequences and timelines,” the agency added. The perfect case in point is Italy’s banking crisis. If the country’s struggling banks are not saved with a combination of public and private money — a process that, to all intents and purposes, began on Friday with the announcement of Monte dei Paschi’s suspension of the ECB’s stress test as well as a €5 billion capital expansion later this year — the resulting carnage could unleash not only a tsunami of financial contagion but also an unstoppable groundswell of political opposition to the EU.

For a taste of just how disastrous the political fallout would be for Italy’s embattled premier, Matteo Renzi, here’s an excerpt from a furious tirade given by Italian financial journalist Paolo Barnard on prime-time TV, addressing Renzi directly:

“You went to meet Mrs. Merkel to ask for a minor public funded bail-out of Italian banks and you got a sharp NO. But did anyone tell you that Germany from 2009 onwards bailed out its failing banks with public money? “Banks, that is, with holes in their balance sheets visible from the Moon.

Germany bailed them out to the tune of €704 billion. It was all paid for by European taxpayers’ money, public funds that is. “It was done through the EU Commission of Mr Barroso and by Mr Mario Draghi at the ECB. Didn’t you know that Mr Renzi? Couldn’t you have barked this right into Ms Merkel’s face?”

Barnard rounded off his rant with a rallying call for Italians to follow the UK’s example and demand an exit from the EU — a prospect that should be taken very seriously given that one of the manifesto pledges of Italy’s rising opposition party, the 5-Star Movement, is to call a referendum on Italy’s membership of the euro.

Opec’s worst fears are coming true. Twenty months after Saudi Arabia took the fateful decision to flood world markets with oil, it has failed to break the back of the US shale industry. The Saudi-led Gulf states have certainly succeeded in killing off a string of global mega-projects in deep waters. Investment in upstream exploration from 2014 to 2020 will be $1.8 trillion less than previously assumed, according to consultants IHS. But this is an illusive victory. North America’s hydraulic frackers are cutting costs so fast that most can now produce at prices far below levels needed to fund the Saudi welfare state and its military machine, or to cover Opec budget deficits.

Scott Sheffield, the outgoing chief of Pioneer Natural Resources, threw down the gauntlet last week – with some poetic licence – claiming that his pre-tax production costs in the Permian Basin of West Texas have fallen to $2.25 a barrel. “Definitely we can compete with anything that Saudi Arabia has. We have the best rock,” he said. Revolutionary improvements in drilling technology and data analytics that have changed the cost calculus faster than most thought possible. The “decline rate” of production over the first four months of each well was 90pc a decade ago for US frackers. This dropped to 31pc in 2012. It is now 18pc. Drillers have learned how to extract more. Mr Sheffield said the Permian is as bountiful as the giant Ghawar field in Saudi Arabia and can expand from 2m to 5m barrels a day even if the price of oil never rises above $55.

His company has cut production costs by 26pc over the last year alone. Pioneer is now so efficient that it already adding five new rigs despite today’s depressed prices in the low $40s, and it is not alone. The Baker Hughes count of North America oil rigs has risen for seven out of the last eight weeks to 374, and this understates the effect. Multi-pad drilling means that three wells are now routinely drilled from the same rig, and sometimes six or more. Average well productivity has risen fivefold in the Permian since early 2012. Consultants Wood Mackenzie estimated in a recent report that full-cycle break-even costs have fallen to $37 at Wolfcamp and Bone Spring in the Permian, and to $35 in the South Central Oklahoma Oil Province. The majority of US shale fields are now viable at $60.

Money managers have never been more certain that oil prices will drop. They increased bets on falling crude by the most ever as stockpiles climbed to the highest seasonal levels in at least two decades, nudging prices toward a bear market. The excess supply hammered the second-quarter earnings of Exxon Mobil and Chevron. Inventories are near the 97-year high reached in April as oil drillers boosted rigs for a fifth consecutive week. “The rise in supplies will add more downward pressure,” said Michael Corcelli, chief investment officer at Alexander Alternative Capital, a Miami-based hedge fund. “It will be a long time before we can drain the excess.”

Hedge funds pushed up their short position in West Texas Intermediate crude by 38,897 futures and options combined during the week ended July 26, according to the Commodity Futures Trading Commission. It was the biggest increase in data going back to 2006. WTI dropped 3.9% to $42.92 a barrel in the report week, and traded at $41.75 at 12:20 p.m. Singapore time. WTI fell by 14% in July, the biggest monthly decline in a year. It’s down by 19% since early June, bringing it close to the 20% drop that would characterize a bear market.

U.S. crude supplies rose by 1.67 million barrels to 521.1 million in the week ended July 22, according to U.S. Energy Information Administration data. Stockpiles reached 543.4 million barrels in the week ended April 29, the highest since 1929. Gasoline inventories expanded for a third week to 241.5 million barrels, the most since April. “The flow is solidly bearish,” said Tim Evans, an energy analyst at Citi Futures Perspective in New York. “It reflects a recognition that the market is, at least for the time being, oversupplied.”

China will not tolerate “unwanted accusations” about its investments in Britain, a country that cannot risk driving away other Chinese investors as it looks for post-Brexit trade deals, China’s official Xinhua news agency said on Monday. British Prime Minister Theresa May was concerned about the security implications of a planned Chinese investment in the Hinkley Point nuclear plant and intervened to delay the project, a former colleague and a source said on Saturday.The plan by France’s EDF to build two reactors with financial backing from a Chinese state-owned company was championed by May’s predecessor David Cameron as a sign of Britain’s openness to foreign investment.

But just hours before a signing ceremony was due to take place on Friday, May’s new government said it would review the project again, raising concern that Britain’s approach to infrastructure deals, energy supply and foreign investment may be changing. China General Nuclear Power, which would hold a stake of about a third in the project, said on Saturday it respected the decision of the new British government to take the time needed to familiarise itself with the program. Xinhua, in an English-language commentary, said China understood and respected Britain’s requirement for more time to think about the deal. “However, what China cannot understand is the ‘suspicious approach’ that comes from nowhere to Chinese investment in making the postponement,” it said.

The project will create thousands of jobs and create much needed energy following the closure of coal-fired power plants, Xinhua added, dismissing fears China would put “back-doors” into the project. “For a kingdom striving to pull itself out of the Brexit aftermath, openness is the key way out,” it said.

More than a year after they were imposed, capital controls in Greece will be substantially eased on Monday in a bid to lure back billions of euros spirited out of the country, or stuffed under mattresses, at the height of the eurozone crisis. The relaxation of restrictions, whose announcement sent shockwaves through markets and the single currency, is aimed squarely at boosting banking confidence in the eurozone’s weakest member. The Greek finance ministry estimates around €3bn-€4bn could soon be returned to a system depleted of more than €30bn in deposits in the run-up to Athens sealing a third bailout to save it from economic collapse last summer.

“The objective is to re-attract money back to the banking system which in turn will create more confidence in it,” said Prof George Pagoulatos who teaches European politics and economy at Athens University. “And there are several billion that can be returned. People just need to feel safe.” As such the loosening of measures initially seen as an aberration in the 19-strong bloc is being viewed as a test case: of the faith Greeks have in economic recovery and the ability of their leftist-led government to oversee it. New deposits will not be subject to capital controls; limits on withdrawals of money brought in from abroad will also be higher; and ATM withdrawals will be raised to €840 every two weeks in a reversal of the policy that allowed depositors to take out no more than €420 every week.

[..] From 2008, the year before the country’s debt crisis erupted, until the end of 2015, an estimated 244,700 small- and medium-sized businesses have closed with many more expected to declare bankruptcy this year. The latest move, which follows easing of transactions abroad, is directed at small entrepreneurs, for years the lifeline of the Greek economy, and individual depositors. But while economists are calling the easing of restrictions a significant step to normalisation, Greek finances are far from repaired. Challenges for the prime minister, Alexis Tsipras, are expected to peak – along with social discontent – in the autumn when his fragile two-party coalition is forced to meet more milestones and creditor demands, starting with the potentially explosive issue of labour reform. Further disbursement of aid – €2.8bn – will depend exclusively on the painful measures being passed.

Politics in the advanced economies of the West is in the throes of a political shakeup unseen since the 1930s. The Great Deflation now gripping both sides of the Atlantic is reviving political forces that had lain dormant since the end of World War II. Passion is returning to politics, but not in the manner many of us had hoped it would. The right has become animated by an anti-establishment fervor that was, until recently, the preserve of the left. In the United States, Donald Trump, the Republican presidential nominee, is taking Hillary Clinton, his Democratic opponent, to task – quite credibly – for her close ties to Wall Street, eagerness to invade foreign lands, and readiness to embrace free-trade agreements that have undermined millions of workers’ living standards.

In the United Kingdom, Brexit has cast ardent Thatcherites in the role of enthusiastic defenders of the National Health Service. This shift is not unprecedented. The populist right has traditionally adopted quasi-leftist rhetoric in times of deflation. Anyone who can stomach revisiting the speeches of leading fascists and Nazis of the 1920s and 1930s will find appeals – Benito Mussolini’s paeans to social security or Joseph Goebbels’ stinging criticism of the financial sector – that seem, at first glance, indistinguishable from progressive goals.
What we are experiencing today is the natural repercussion of the implosion of centrist politics, owing to a crisis of global capitalism in which a financial crash led to a Great Recession and then to today’s Great Deflation.

The right is simply repeating its old trick of drawing upon the righteous anger and frustrated aspirations of the victims to advance its own repugnant agenda. It all began with the death of the international monetary system established at Bretton Woods in 1944, which had forged a post-war political consensus based on a “mixed” economy, limits on inequality, and strong financial regulation. That “golden era” ended with the so-called Nixon shock in 1971, when America lost the surpluses that, recycled internationally, kept global capitalism stable.

The Indian government has come to the rescue of more than 10,000 of their starving citizens in Saudi Arabia. Some 16,000 kg of food was distributed on Saturday night by the consulate to penniless workers who’ve lost their jobs and not been paid. The issue came to light when a man tweeted India’s foreign minister Sushma Swaraj saying around 800 Indians had not eaten for three days in Jeddah, asking her to intervene. Investigations found that there were thousands starving across Saudi Arabia and Kuwait. Ms Swaraj instructed the consulate to make sure no unemployed worker is to go without food, and is said to have monitored the situation on an hourly basis.

She tweeted: “Large number of Indians have lost their jobs in Saudi Arabia and Kuwait. The employers have not paid wages, closed down their factories. “The number of Indian workers facing food crisis in Saudi Arabia is over ten thousand.” Many workers in Saudi Arabia and Kuwait have been living in inhumane conditions after losing their jobs. Hundreds have been laid off without being paid their wages. Indian newspapers reported that one firm – the Saudi Oger company – did not pay wages for seven months. Of its 50,000 employees, 4,000 were Indians. India’s Consul General Mohammad Noor Rehman Sheikh, told a news agency: “For the last seven months these Indian workers of Saudi Oger were not getting their salaries and the company had also stopped providing food to these workers.”

[..] India’s junior foreign minister VK Singh has been tasked to travel to Saudi Arabia to put in place an evacuation process which is due to begin soon. He had successfully led the evacuation of a large number of Indians from war-torn Yemen and most recently from South Sudan. There are more than three million Indians living and working in Saudi Arabia and more than 800,000 in Kuwait. Falling oil prices have hit the economy of Saudi Arabia and other Gulf countries.

“You may call it ‘nonsense’ if you like, but I’ve heard nonsense, compared with which that would be as sensible as a dictionary,” says the Red Queen in “Through The Looking-Glass.” Central banks have gone down the rabbit hole. Starting with record low interest rates, then purchases of government bonds and mortgage bonds, ultra-accommodative policy progressed in Japan to buying real-estate investment trusts and equity funds. With negative rates, central bankers have now managed what was believed all but impossible: breaching the “zero lower bound.” In the looking-glass world of modern central banking, almost nothing is taboo, with even the abolition of cash discussed seriously by top monetary wonks.

One idea not yet considered: the Bank of Japan should print money to buy oil. It sounds beyond nonsense. But with central bankers believing six impossible things before breakfast, it no longer seems inconceivable, which is informative in itself. Consider the BOJ’s problem. The central bank is creating ¥80 trillion ($700 billion) a year to buy mainly government bonds, one of the biggest programs of money printing in history. It already owns almost a third of the bond market, nearly 2% of equities and about half of exchange-traded funds by value. Nonetheless, Japanese inflation remains quiescent. The yen has been strengthening despite the negative rates introduced last month, making it even harder to push prices up toward the BOJ’s 2% target.

There have been hints that the BOJ will do more next month, although Gov. Haruhiko Kuroda on Tuesday cast doubt on whether printing money alone would achieve the goal. The obvious alternative is to take rates much more negative, possibly in conjunction with more asset purchases and higher government spending. Yet, negative rates have unpleasant side-effects, hurting banks, while bond supply may be limited. Nomura estimates that over the next three years only ¥236 trillion of bonds could be available to buy because banks and insurance companies are reluctant to sell many of their holdings—making it hard to ramp up purchases further. HSBC says that in a worst-case scenario the BOJ would have trouble filling its monthly purchases later on this year.

These estimates may be overly pessimistic. If not, the obvious alternative of buying foreign assets is challenging. Direct currency manipulation is a diplomatic no-no nowadays for such a big country as Japan, so buying U.S. Treasurys—similar to Swiss purchases of European bonds—is not realistic. There are more extreme options, such as direct financing of government spending, or abolishing bank notes so interest rates can go deeply negative. None is politically palatable. Compared with these, creating money to buy oil has several big advantages.

Mario Draghi has two weeks left to decide how to ramp up stimulus in a way that doesn’t upset either his colleagues or investors. When ECB policy makers meet in Frankfurt from March 9-10, they’ll consider whether negative interest rates and 60 billion euros ($67 billion) a month of debt purchases is enough to revive consumer prices. With another rate cut priced in by markets, the biggest question mark hangs over how to customize quantitative easing. The ECB president has said there are no limits to how far policy makers will go within their mandate, yet sub-zero rates carry risks and expanding QE is easier said than done.

He’ll walk a fine line between convincing investors he can overcome the hurdles and avoiding the market disappointment that greeted the last adjustment in December. “It’ll be very challenging” to increase QE, said James Nixon at Oxford Economics, who doesn’t expect such a move just yet. “You’d have to sort of throw the rule book out. It might be quite interesting to see whether Draghi, as he tends to do when he’s confronted by these situations, pulls another rabbit out of the bag.”

[..] To ease the reliance on German debt, the ECB could eliminate the capital key that links buying to economic size. That would allow other countries with more outstanding debt, such as Italy, to buy a greater share. That strategy might make it look like the ECB is supporting nations that pursued riskier fiscal policies. Worse, it could draw accusations of monetary financing, which is banned under European Union law. “They chose the capital key for a reason,” said Peter Schaffrik at Royal Bank of Canada in London. “Do I think it would make sense to change that from a macroeconomic point of view? Absolutely. Do I think that’s the preferred measure and most easily adoptable within the council? I’m not so convinced.”

Allowing central banks to buy other nations’ public debt would also be a hard sell. It’s unlikely a country such as Germany would find it acceptable to buy riskier bonds from elsewhere. “You’ve really got to sort of put that in print, write it down, to realize how completely unworkable politically that would be,” Nixon said. “It’s just a complete non-starter.”

Do investors think central banks can restore calm or is negative rate policy an error? Bear markets thrive on fear and uncertainty. Until a few weeks ago, the list included a hard landing for China, plunging oil prices, problems for European banks and fears that even the US economy was rolling over. Now we worry that central bankers are not just behind the curve, to use that trite phrase, but have lost the plot. What is the current policy framework, let alone its efficacy? The first concern is China’s exchange rate policy; is it simply moving from a fixed dollar peg to a trade weighted basket? Is modest volatility required to justify the renminbi’s membership of the IMF’s SDR, the reserve asset, or a dramatic depreciation to prop up a rapidly slowing economy? The ‘unholy trinity’ remains very clear — that China cannot simultaneously control its currency and its money supply growth and allow free flow of capital.

A second policy error possibly took place when the Bank of Japan unexpectedly adopted negative interest rates, following in the footsteps of several European central banks. Just as with QE, there are several channels through which this new policy tool could affect the real economy. The standard argument is that in a world of low headline inflation the zero bound on nominal yields needs to give way to engineer negative real yields, encourage portfolio rebalancing and discourage savings. There are other rationales, though; the Swiss and Swedish central banks adopted negative rates to dissuade currency inflows which could destabilise their inflation targets. It is vital to recognise what works domestically need not work externally. Each central bank in turn argues that their currency is too high in relation to domestic conditions, and therefore action needs to be taken to make their exchange rate more competitive.

This argument might work in an environment of strong global GDP and trade growth but those days are long past. We are all familiar with the litany of headwinds which have brought global nominal GDP growth to its lowest since 2009. A zero sum game is threatening with no winners from ever more desperate efforts to bring currencies down. Negative rates are an especially large threat to commercial banks because they compress net interest margins and thus remove a key driver of profits. That may matter less in Sweden where banks can benefit from a range of other income sources. Rightly or wrongly, investors have assumed that Japan’s decision is more dangerous. Sure, the BoJ was aware of the risk and crafted a complicated three-tier mechanism, but negative rates were associated with a parallel shift down, rather than a steepening, in the yield curve. Over 70% of the JGB market now has negative yields — about 15% of Japanese bank assets are in bonds and bills. How can this help profits growth?

China has two very good reasons to slow the gusher of cheap money that continues to flood its economy. The first, obviously, is to prevent the kind of financial implosion that’s struck down similarly debt-burdened countries. The second is just as important: to clear out the deadwood in the world’s second-largest economy. For Chinese leaders, the need to prop up faltering GDP growth outweighs fears about a rapid buildup in debt. In January alone, banks made a record $385 billion worth of new loans, more than 70% higher than the year before. Debt now tops 230% of GDP and could reach as high as 300% of GDP if current trends continue. Billionaire investor Bill Gross has joined the chorus of voices calling this trajectory “unsustainable.” Even the Bank for International Settlements, a body not known for hyperbole, has warned that Chinese debt is reaching levels that typically trigger financial crises.

The recent surge in credit is merely an extension of policies put into place after the global financial crisis. To fend off a downturn, China launched a massive 2009 fiscal stimulus package focused on infrastructure and investment spending. Simultaneously, policymakers ordered banks to open the credit spigot. Since January 2009, total loans in China have grown 202%, for an annualized growth rate of 34%. Local governments and businesses alike have been only too happy to partake in the largesse. The problem is that most of this money has gone into the least efficient, most saturated parts of the economy. Nomura estimates that 40% of bank loans to companies go to state-owned enterprises, although they account for barely 10% of China’s output. The money is being used to prop up companies that probably shouldn’t survive: One Chinese securities firm suggests 45% of new debt is being used to pay interest on old debt, like using a new credit card to pay off an old one.

Cheap money is also continuing to expand capacity in sectors that already have too much. There are currently about four-and-a-half years’ worth of residential real estate sales under construction. Coal plants, which are currently running at only 67% of capacity, are investing in an additional $9.4 billion worth of capacity in 2015, with a similar number expected in 2016. The government has pledged to slash capacity in the bloated steel sector by as much as 13% by 2020. But given that the industry is already losing about $25 for every ton of steel produced, those small cuts, even excluding capacity additions, are hardly going to solve the problem. The government isn’t blind to the dangers. Its 2016 economic plan lists “deleveraging” and capacity reduction as two major priorities for the year.

The central bank has imposed limits on certain banks that had been a bit too liberal in their recent lending. But the fact remains that the state-owned giants drawing the bulk of new lending are also the most politically well-connected. Rather than shutting them down and throwing potentially millions of Chinese out of work, the government hopes to keep them afloat while they’re merged and overhauled. There’s little reason to think this plan can succeed. No country with a similarly rapid rise in debt levels has escaped either a financial crisis, or like Japan, a prolonged slowdown. Continuing to lend at this pace will only increase the ranks of zombie companies, alive because of government life support. Slowing lending will inevitably mean lower GDP growth, more corporate bankruptcies and higher unemployment. But it will also reduce the buildup of risks that are otherwise certain to come due.

China still owns the world’s largest currency reserves, but it has been burning through them at such a pace that some think Beijing might soon have to allow a sharp fall in the yuan or back-pedal on liberalization and tighten its capital controls. Foreign exchange reserves in China declined $99.5 billion in January to $3.23 trillion, following a record fall the previous month, and have shrunk by $762 billion since mid-2014, more than the gross domestic product of Switzerland. That still leaves a mighty arsenal, and the People’s Bank of China says it is more than adequate, though it has not said what the minimum might be and did not return a request for comment. PBOC governor Zhou Xiaochuan told Caixin magazine a week ago that much of the outflow had been Chinese companies repaying dollar debt as the greenback rose, which would bottom out, or outbound investment, which was to be welcomed.

Most economists agree China has a way to go before running out of road, but some believe it will have to hit the brakes in months, not years. The pace of decline has accelerated as the PBOC fought to keep the yuan steady in the face of speculative selling offshore and capital flight at home, a task made harder by China’s slowest economic growth in 25 years and the bank’s own decision to guide the currency down in August and again in early January. Though it has huge reserves, an economy the size of China’s needs them to cover imports and foreign debts, and the less liquid assets in reserves can’t readily serve those purposes. Though the composition of China’s reserves is a state secret, officials also say the falling dollar value of other currencies it holds accounts for some of the fall.

Economists and foreign exchange professionals around the world are nevertheless asking how low can they go before Beijing is forced to choose between fresh capital controls or giving up selling dollars to defend the yuan. French bank Societe Generale says IMF guidelines put $2.8 trillion as the minimum prudent level for China, which is not far away if reserves keep falling at the current pace. “If that occurs in the next few months,” says SocGen, “expect to see a tidal wave of speculative selling, forcing the PBOC to throw in the towel and let the market decide the level of the renminbi exchange rate.” A G20 deputy central banker was considerably more sanguine. “Whatever number I would come up with, it would be a lot less than $2.8 trillion,” he said, adding that reserves could fall another trillion by year-end in conjunction with stability in the exchange rate.

While markets are flirting with the idea that a big devaluation of the yuan could take China’s economic slowdown to a new and more dangerous place, economists and some money managers say it’s not at all likely. Over the past eight months, China’s central bank has spent billions of dollars to fend off speculators who think the yuan will fall as China looks to pump up exports. The currency fell to a five-year low of 6.51 against the dollar on Jan. 6 as weak economic data spooked investors. That’s one reason uber-bear fund manager Kyle Bass, founder of Hayman Capital Management, could shake markets with a prediction that China’s currency could lose 40% of its value in the next 18 months, thanks to the heavy debt load of state-backed Chinese enterprises.

Bass’ idea is that China’s banks are facing huge yet-undisclosed credit losses, largely on loans to manufacturers that, like the banks, are controlled by the government, and that the currency will fall as the government prints yuan to recapitalize the banks. Bass’ opinion remains, for now at least, a minority view. Other fund managers and economists argue that devaluation would do little to promote sales of Chinese exports that are already competitive, especially in the U.S., and that a sharp devaluation would backfire if countries like Australia, Malaysia and Indonesia were prodded to devalue their currencies in a bid to make sure they remain competitive with China.

Most of all, they said, a market-jolting move lower for the yuan would be at odds with a record of incrementalism that Beijing’s government has nurtured for years, and it would rock investors who have already pushed the Shanghai Composite Index down 43% to 2,927 since its peak last June. “They want a stable but gradually declining exchange rate if they can engineer it,” said Barry Eichengreen, an economist at the University of California-Berkeley and former senior policy advisor for the International Monetary Fund. “Stability is good for their image in the markets, and a gradual decline is good for their effort to maintain a growth rate of 6%.”

The sluggish global economy has entered “unprecedented territory” as countries grapple with divergent difficulties, leaving little room for a coordinated policy response from the Group of 20 finance chiefs meeting this week, World Bank President Jim Yong Kim said in an interview. “There is a lot of uncertainty; there is a lot of instability and fluctuations in global markets,” he said. “But I don’t think we’re at a point where you are going to see some sort of concerted, focused action in one sector or another.” Global growth continues to lag even as advanced economies embrace “unorthodox” policies, Kim said. “We are now seeing negative interest rates in Japan, negative interest rates in Europe and even in the US, although they are not negative, the notion that that might be possible has been put on the table, so this is completely unprecedented territory.”

The Washington-based development bank lowered its global forecast for 2016 growth to 2.9%, from a 3.3% projection in June, according to a report it released last month. The world economy advanced 2.4% last year, lower than the 2.8% growth forecast. China’s hosting of the G-20 forum this year in Shanghai culminates in a leaders’ summit in September, and officials are pushing a detailed and diverse platform that covers everything from bolstering investment in infrastructure to climate-friendly financing. The weakening outlook for global growth and how policy makers should respond will dominate the agenda when the G-20 central bank governors and finance ministers gather. China faces calls to make its currency and macroeconomic policies clearer at the meeting.

The economic woes afflicting individual countries are so varied that it’s unlikely a consensus on a policy response will be reached, Kim said. The G-20 provides “an environment in which we can put difficult issues on the table and talk them through,” he said. “But it’s difficult to imagine that everyone would take a particular action around fiscal, monetary or other kinds of policies because you have oil producers and oil importers, you have commodity exporters and commodity importers — there’s such a difference in economic models.”

Call it the new normal for European bank earnings. Standard Chartered shares plunged by the most in more than three years on Tuesday after the bank posted a “surprise” 2015 pretax loss of $1.5 billion, somewhat different from the $1.37 billion average profit estimate from 20 analysts. On Monday, HSBC delivered a “surprise” fourth-quarter pretax loss of $858 million, rather than the expected profit of $1.95 billion. On Jan. 28, Deutsche Bank “surprised” bond investors with a fourth-quarter net loss of $2.3 billion, less than two weeks after tapping them for $1.75 billion of funds. As the saying goes, fool me once, shame on you; fool me twice, shame on me. But fool me three times and maybe I should just resign myself to being a fool, at least where European banks are concerned.

The unpalatable truth is that the banking model is broken. The days of generating gobs of cash from “socially useless” financial engineering, as Adair Turner put it in 2009 when he chaired the U.K. Financial Services Authority, are over. Because banks have to hold more capital for a rainy day, they have less money to play with in financial markets. And they’re still shrinking their trading desks, further curbing their ability to make money from markets. Important aspects of Europe’s regulatory backdrop remain foggy at best; the European Union’s Markets in Financial Instruments Directive, new rules covering a multitude of markets from derivatives to bonds, has been delayed by a year to 2018. But it’s clear that the EU is seeking to keep financial institutions from so-called casino banking as much as possible.

Provisions for European bank loans to oil and gas companies are likely to climb – HSBC took a $400 million hit on those loans this week – further crimping profit. And there seems to be no end to the fines being paid for rigging markets, with settlements for faking prices for gold, silver, platinum, palladium and derivative-market benchmarks still looming. As another saying goes, a billion here and a billion there and pretty soon you’re talking about real money. So it’s little wonder that Europe’s banks have lost about 30% of their value in the past year [..] Central bank interest rates at near or below zero deliver cheap money. But longer-term rates also at record lows and in many cases below zero (five-year German government bonds yield -0.33%) mean banks can’t borrow cheaply and profit from lending to their customers at inflated rates.

Cash-strapped energy firms are coming under increasing pressure from U.S. bank lenders and, on average, could see a 15% to 20% cut in their credit lines, the head of JP Morgan’s commercial bank told investors on Tuesday. Until now, banks could be more lenient with their energy clients despite a prolonged slump in the price of oil, but Doug Petno, the head of JP Morgan’s commercial bank, said that is changing. Moves, disclosed in securities filings, by oil and gas companies such as Linn Energy and SandRidge Energy to max out revolving credit lines – designed to cover short-term funding gaps – have prompted banks to take action. Petno said JP Morgan was not waiting for April, when banks traditionally reassess the value of oil reserves underpinning energy loans – a process known as redetermination – to reassess its exposure.

“We are not waiting for the spring redetermination to discuss this with our clients,” he said during a presentation at JP Morgan’s annual investor day in New York. Petno said JP Morgan had been working closely with its energy customers through the current price rout. The biggest U.S. bank by assets plans to increase provisions for expected losses on bad energy loans by more than 60% in the first quarter. Petno said he expected credit lines, on average, would shrink by 15% to 20% across the industry, but there would be wide variations depending on the health of the borrower. “Some borrowing bases may by go up. Some may go down by 50%,” he said. A lurch in the price of oil below $30 a barrel last month has forced companies to offload assets and cut staff to survive.

Dozens of companies have already hit the wall and a third of oil producers and service firms, or 175 companies, are at high risk of slipping into bankruptcy this year, according to a study by Deloitte. “Most of these clients are working with their banks way in advance of redeterminations, so it is compelling M&A, it is compelling asset sales, it is compelling discussions with private equity. But there is a lot of leverage,” said Petno. “The most distressed clients know when they are going to be pinched… and are taking the steps to deal with it,” he added. “There will be a meaningful number of these players who have no options. I think we have only begun to see the range of bankruptcies in oil and gas.”

Boris Johnson’s backing of Brexit has heightened anxiety in the City of London. But Europe’s dominant financial center faces bigger threats to its future than whether or not the Brits listen to their capital’s mayor and quit the EU. A vote to leave in June’s referendum certainly wouldn’t help London’s financiers. Take this from Deutsche Bank analysts led by Barbara Boettcher:”An EU exit would mean uncertainty for the ability to use the U.K. as a hub to provide banking services into Europe. This has implications not just for the EU operations of U.K. financial institutions (which have actually reduced significantly post-crisis), but also for the U.K. and European operations of banks globally. “Some banks might move their headquarters to continental Europe or shift jobs, Deutsche Bank said, something senior executives have warned about in private over the past year.

HSBC chief Stuart Gulliver broke cover on Monday and said his bank could shift about 1,000 U.K. jobs to Paris in the event of an exit.But despite the veiled (and not so veiled) threats, the City of London is already under pressure on jobs and to defend its pre-eminence in Europe – even before a decision on the EU. For starters, many roles that were traditionally strong in London have been in the firing line since the financial crisis. In particular, big banks are shrinking fixed income and commodities trading desks in response to regulations that make these businesses more capital intensive and less profitable. At the top global investment banks, fixed income revenues and staffing levels fell about a third between 2010 and 2015, according to Coalition research. More broadly, weak revenue growth across banking puts more emphasis on costs as the best way to lift profit.

Investment-banking revenue has dipped 15% since 2010 but costs have remained stubbornly high despite layoffs. That suggests more cuts will come.Meanwhile, the soaring cost of employing staff in London makes it harder to keep large swathes of workers there when other locations will do. London has by far the most expensive office space in Europe – annual leasing costs run to $122 per square foot on average, compared to just $56.75 in Paris or $53.25 in Frankfurt. Surging accommodation costs are pushing up the cost of living too. The median house price in London climbed about 13% in December from a year earlier to $615,931. Already, many global investment banks have shifted jobs to smaller U.K. cities such as Bournemouth, Birmingham and Manchester and to offshore sites, and more plans are afoot.

Jonathan Tepper, a UK based economist and founder of research house Variant Perception, is convinced Australia is in the midst of “one of the biggest housing bubbles in history”. The Australian Financial Review reports about how he and local hedge fund manager John Hempton scoped out the apparent epicenter of this bubble, Sydney’s western suburbs, and walked away thinking it was even worse than they’d originally thought. It’s a fascinating story. In a subsequent report to clients, obtained by Fairfax Media, Tepper uses the following charts to support his thesis.

‘Australia is simply in a league of its own when it comes to mortgage lending.’

And a rising share of these mortgages are ‘interest only’ loans

“The Australian housing bubble could not have become as ridiculous as it is without the help of easy financing,” he writes. “Over the past few years, over 40% of all new mortgages originated have been interest-only mortgages. “This is truly Ponzi financing, where home buyers only make money if their houses keep rising in value,” he writes, later describing interest only loans as a “disaster waiting to happen.”

The negative gearing effect…

It is one of the most contentious issues in the national political discourse at the moment. Tepper likens negative gearing – the ability to claim losses on leveraged investment properties as a tax deduction – to startups during the dot com bubble burning through their cash. “Only in a bubble could losing money on housing be viewed as positive,” he writes.

Portugal’s Socialist-led lawmakers have approved a 2016 budget that pledges to reverse unpopular austerity measures but is seen as high-risk by critics and investors, with Lisbon under EU pressure to stay on a disciplined path. “This budget proves it is possible to live a better life in Portugal,” socialist Prime Minister Antonio Costa said yesterday. The vote came a few weeks after the European Commission approved Portugal’s draft, but warned that more efforts would be needed by the government to avoid a breach of EU rules on spending. In response, Portugal cut its budget deficit target for 2016 to 2.2% of GDP from a previously announced target of 2.6%. Last year, Portugal’s budget deficit came in at 4.3%, well above the EU’s 3.0% limit.

The conservative opposition lashed out at the new budget yesterday, branding it “unrealistic and populist”. “It is a poisoned gift for the Portuguese,” said former prime minister Pedro Passos Coelho. Portugal received a massive international debt bailout in 2011 that saved it from defaulting, but in return the country had to introduce a string of austerity measures. In four years, over 78,000 public sector jobs were cut – more than 10% of the total – alongside other steps the creditors said were needed to return the public finances to balance and put the economy back on track.

Portugal’s public debt is forecast to hit 130% of GDP. True to the socialists’ campaign promises that brought them to power in November, Costa’s budget restores civil servants’ salaries, eases a surtax tax on employees’ incomes, and breathes new life into the welfare system. However, in a bid to appease Brussels’ demands, the government also announced a hike in taxes on fuel, vehicles and tobacco. Analysts were sceptical however that the plan would actually work. “The budget seeks an impossible balance. It is doomed. It will neither put an end to austerity, nor will it meet the deficit objectives,” said Joao Cesar das Neves, an economics professor.

The Czech Republic may choose to follow Britain out of the EU, the country’s prime minister said, amid growing fears in Brussels of a “contagion”. Bohuslav Sobotka said that a “Czexit” may take place. The Czech Republic only joined the EU in 2004 and has been the beneficiary of billions in development funds, but has some of the most hostile public opinion. A Brussels decision to force the country to take in a quota of migrants caused fury. Three-fifths of Czechs said they were unhappy with EU membership and 62% said they would vote against it in a referendum, according to an October 2015 poll by the STEM agency. “If Britain leaves the EU, we can expect debates about leaving the EU in a few years too,” said Mr Sobotka, who led eastern European states in opposition to David Cameron’s plans to curb benefits.

“The impact may be really huge,” he said, adding that a “Czexit” could trigger an economic and security downturn and a return to the Russian sphere of influence. Such a move “would be an absolute negation of the developments after 1989”, he said, referring to the revolution of Czechoslovakia that threw off Soviet rule. There are fears in Brussels that the multiple crises of Brexit, migration and the euro mean that 2016 will prove to be the high-water mark of the European project, in which it becomes plain that the vision of a fully federalised EU state will never be reached. And leaders fear that Mr Cameron will trigger a string of copy-cat referendums from ambitious leaders who want to extract special concessions from Brussels, pulling the bloc to pieces.

Meanwhile, Aleksander Vucic, the Serbian Prime Minister said that EU membership is no longer the “big dream it was in the past” for Balkan states.. “The EU that all of us are aspiring to, it has lost its magic power,” Mr Vucic told a conference at the European Bank for Reconstruction and Development (EBRD) in London. “Yes we all want to join, but it is no longer the big dream it was in the past.” “When you see that in Britain at least 50% of the people say they want to leave that has an effect on the public,” he said. Seven states are in the queue to join the EU under a new wave of enlargement, that will not take place before 2019: Serbia, Montenegro, Kosovo, Bosnia-Herzegovina, Albania, Turkey and Macedonia. Membership could take years for some, as they are gripped by corruption, cronyism and sky-high unemployment, according to the EU’s own assessment reports.

The recent Nato agreement to create a mission to tackle the migration crisis in the Aegean has been presented as a major new development. But its impact on migrant flows will in reality be limited. Its shape and scope for action is a reflection of Turkey’s priorities in the region rather than European needs. The creation of the Nato mission showcases the EU’s strategic irrelevance and highlights Turkey’s desire to entangle Europeans in its adventurist endeavours in Syria. The Nato mission will conduct monitoring, surveillance and reconnaissance in the Aegean in order to deter and contain the activities of human traffickers. Nato forces will not push back boats, except when rescuing migrants from drowning who will be returned to Turkey. The task of deterring smugglers will be performed by the Greek and Turkish coastguards.

But assistance from Nato will not make much of a difference if the key actor in the crisis, Turkey, does not act decisively. The stemming of migration flows still hinges on Turkish will to patrol its coasts. In previous months, Turkey had been under pressure to patrol its coasts more effectively. But it refrained from acting because the cost of accepting back or keeping in Turkish territory large numbers of migrants was considered much higher than whatever rewards the EU had promised. Caving in to external pressure would also be infuriating for domestic public opinion. A Nato mission allows Turkey to give in to some EU demands while circumventing these problems. As the mission covers Turkish as well as Greek territory, Turkey can deflect part of the European pressure for control of migrant flows back on its neighbour.

Turkey has also ensured that its actions will be scrutinised by an organisation in which it has a strong say. The migration issue forms only one aspect of a complex geopolitical game that Turkey is involved in now in Syria. Turkey’s relationship with Russia has deteriorated rapidly. Moscow’s clients in Syria have made significant inroads against Turkey’s allies, threatening it with both a collapse of its support and the arrival of new waves of refugees to its borders. Turkey’s position is further complicated by the assertiveness of Syria’s Kurds, whom Turkey’s Western allies consider a valuable ally against Islamic State. Turkey is now pushing for stronger support from Nato for its activities in Syria. A first step was taken in the same meeting that authorised the migrant mission in the Aegean. There,

Nato also decided to step up its participation in the fight against Islamic State, initially by deploying AWACS planes in the region. Involving Nato in the management of the migration crisis is part of a broader strategy by Turkey to align Europeans with its goals in the region. Any signs of Turkey becoming more cooperative on migration in the following weeks must be seen through the prism of its interests in Syria and its expectation that Europe will support it there in return.

More than 110,000 migrants and refugees have arrived in Greece and Italy already this year, a sharp increase on 2015, the International Organization for Migration (IOM) said on Tuesday. They include around at least 102,500 landing on Greek islands including Samos, Kos and Lesbos, and 7,500 in Italy, the IOM said. “Over 410 migrants and refugees have also lost their lives during the same period, with the eastern Mediterranean route between Turkey and Greece continuing to be the deadliest, accounting for 321 deaths,” the IOM said. Last year, the figure of 100,000 refugees and migrants was not reached until the end of June, according to IOM figures. Spokesman Itayi Viriri noted that the figure of 100,000 had already been exceeded this year despite rough sea conditions in recent days on the route from Libya to Italy. Migrants arriving in Italy are often in “very bad condition, having been subjected to violence by smugglers in Libya”, the IOM said, adding that women were subjected to human trafficking.

More than 700 migrants were rescued from six leaky boats in the sea between Tunisia and Sicily on Tuesday and four were found dead, the Italian navy said. More than 400 migrants have died in the Mediterranean this year, as people continue to try to cross into Europe despite bad winter weather in the second year of Europe’s biggest migration crisis since World War II. More than 110,000 people, many fleeing poverty and war in Africa and the Middle East, have arrived in Greece and Italy this year, a sharp increase on 2015, according to the International Organization for Migration (IOM). The navy said one of its ships went to help three boats, recovering 403 survivors and the four bodies. Another ship rescued 219 people from two vessels and a third coordinated the rescue of 105 migrants from their sinking boat.

The navy did not say what nationality the migrants were nor did it give any other information about their identities. Bad weather cut the number of people arriving last month in Greece, the main gateway to Europe for migrants, but the number was still nearly 40 times higher than in the previous January, European Union border agency Frontex says. Most of those were from Syria, Iraq and Afghanistan, while most of those who entered Europe via Italy were Nigerian, according to Frontex. Italy called on Monday for shared funding, including through issuing EU bonds, for a common policy to manage external borders and cope with the migration crisis.

More than 12,000 refugees and migrants found themselves trapped in Greece on Tuesday as Athens took diplomatic action to counter the border restrictions to its north that are causing the buildup. The Greek government issued a demarche to Austria over its decision to limit the number of asylum seekers it will accept, as well as the number of migrants that can pass through its territory in transit. Vienna is also hosting a conference on Wednesday to discuss the refugee crisis. A number of Western Balkan countries will attend but Greece had not been invited, prompting Athens to accuse the Central European country of making a “unilateral” move. “The exclusion of our country at this meeting is seen as a non-friendly act since it gives the impression that some, in our absence, are expediting decisions which directly concern us,” said Foreign Minister Nikos Kotzias.

Prime Minister Alexis Tsipras also called his Dutch counterpart Mark Rutte to discuss Athens’s grievances as the Netherlands currently holds the six-month rotating EU presidency. Athens feels that there was an agreement at last week’s leaders’ summit in Brussels that none of the Union’s members should take any unilateral actions concerning refugees until the planned meeting with Turkey takes place on March 6. The limitations put in place by Austria have had a knock-on effect along the rest of the so-called Balkan Route for migrants, particularly on Greece’s border with the Former Yugoslav Republic of Macedonia (FYROM), where only a few dozen people were allowed to cross on Tuesday.

FYROM border guards refused to allow Afghans to cross, leading to the Greek government hiring 21 coaches to transport the migrants back to Athens, where some were taken to the former Olympic Games site at Elliniko and others to the transit center at Schisto. Last night there was a total of around 2,500 people at the two sites. The rise in the number of arrivals also means there is a greater number of refugees and migrants on the Greek islands. Almost 1,400 people were rescued by the coast guard on Lesvos, some 1,200 people were at the hot spot on Chios and more than 1,300 had arrived on passengers ferries at Piraeus.

The European Commission and the Dutch EU presidency warned on Tuesday (23 February) of a humanitarian crisis in the Western Balkans and “especially in Greece,” adding that preparation for “contingency plans” was under way. The warning comes after border controls along the Western Balkan migration route were tightened in recent days in Austria and Macedonia. It is the realisation of a worst-case scenario becoming reality for EU authorities, in which Greece would be in effect cut off from the Schengen area and left to cope with hundreds of thousands of stranded refugees, while still being itself in the middle of an economic and social crisis. On Monday, Macedonia decided to deny entry to Afghan migrants and restricted access to Syrians and Iraqis.

The move followed last week’s decision by Austria to cap to 80 the number of daily asylum applications and to 3,200 the number of entries, also under the condition that the people go to another country to apply for asylum. The situation illustrates the growing rift between the actions of some EU and Balkan states and the common policies the European Commission and Germany have tried to put in place since the start of the migrant crisis last summer. The result is growing and potentially dramatic pressure on Greece, where 2,000 to 4,000 migrants arrive on the islands each day. On Tuesday alone, 1,130 refugees arrived at Athens Piraeus port, where they will have to be taken care of. “We are concerned about the developments along the Balkan route and the humanitarian crisis that might unfold in certain countries especially in Greece,” EU migration commissioner Dimitri Avramopoulos and Dutch minister for migration Klaas Dijkhoff said in a joint statement.

They called on “all countries and actors along the route to prepare the necessary contingency planning to be able to address humanitarian needs, including reception capacities”. “In parallel,” they said, “the commission is coordinating a contingency planning effort, to offer support in case of a humanitarian crisis both outside and within the EU, as well as to further coordinate border management.” Commission experts are already in Greece to assess the needs and what could be done in cooperation with the UN. Faced with the new developments, the commission seems to be more helpless than ever. “There is a clear risk of a fragmentation of the [Balkan] route,” an EU official said, with countries deviating from previously agreed plans. “We are concerned by the fact that member states are acting outside of the agreed framework,” commission spokeswoman Natasha Bertaud told journalists on Tuesday.

[..] This is the scenario that is now unfolding with the Austrian-Balkan initiative, one that the commission, together with Germany and some other EU countries, had wished to avoid. “We cannot let Greece become an open air detention camp,” a senior EU diplomat said, adding that “preserving the integrity of Schengen” was crucial for the EU. Financial and geopolitical concerns also come under consideration as Greece is engaged in an €85 billion bailout programme. “We do not want 500,000 migrants to destabilise the Greek government and Greece itself,” a source from another influential country said. “We would not see our money back and the whole EU would dismantle.”